The old guys and I have been discussing the merits of owning investment property here and here.
Between my research before writing the posts and the comments from our readers, I’m seeing how much our personal experiences shape our ideas of what a good investment is.
Commitment
I’ve written a bit about commitment in investing. It is important that we believe strongly in our investments else it is easy for us to write them off and sell as soon as there is trouble. Selling during a pullback is always problematic. We’re selling at a low price point. Not cool.
When we are committed to our investment and we believe it will be successful, we tend to hang in there and wait for a rebound.
Pullbacks come frequently. It’s part of investing. Selling during pullbacks guarantees that we’ll under-perform. Most investors under-perform the market. It’s not just because we make poor choices, it’s because we tend to sell the losers and chase the hot stock or fund of the day.
What Builds Commitment?
I talk a lot about how it is important to know the companies we invest in. Read an annual report, read a research report, go to the website, visit a company store… When we understand the business and have a strong thesis for our companies, it is much easier for us to stay invested for the long run.
Experience
Easy for me to say…I’ve spent much of my career in asset management. I worked for an investment company. I worked in areas where we researched and rated companies, we tracked performance, we built portfolios, we bought and sold securities…this is familiar to me.
Having had the opportunity to work with research analysts, portfolio managers and stock traders, I have a level of understanding and comfort that most others don’t. I realize this and that’s why I’ve presented training classes and I write this blog.
But recently, I’ve started to think about how that’s still not enough.
A couple of readers posted about their positive experiences in owning income property. They have family members who have also owned income properties.
This is what they know.
Experience matters.
What’s the Best Investment?
We spend a lot of energy on questions like ‘what’s the best?”
There is quite a bit of grey area in this question, and we may have different definitions best.
The best investment is one that we can stick with, that actually increases in value over time, and which allows us to sleep at night, comfortable with our investment decision. For me that’s stocks, for others it’s mutual funds. For some it may be a 2nd home, a rental property, a classic car or baseball cards.
Wrap-Up
The best investment isn’t necessarily the one that performed the best. This is even more true, because we don’t know how the story ends.
In one of the earlier posts, I wrote about my huge return on a small investment in Apple. That’s great. If Apple goes to zero tomorrow because they can’t make a phone profitably in the new tariff environment, my 15 year love affair with Apple comes to an abrupt end.
I believe this is unlikely and I’ll continue to hold my shares, but it’s possible. I can sleep at night believing my shares will be worth more in the future.
Some of our readers don’t have this level of comfort. They’ve made real money on home value appreciation. They may have bought a home, lived in it for years, sold it and bought a more expensive home.
Conviction is different than blind faith (great band by the way). Conviction is not putting your money in an S&P 500 fund and leaving it because experts told you to. Conviction for you may be buying property and watching it slowly appreciate over time because you’ve seen the story play out and you’re confident in the result.
Mike, Mike and Tony – thank you for your comments and sharing your thoughts and experiences. It made me think.
Proving yet again that even a blind squirrel finds a nut sometimes, I was on phone with my Fidelity advisor last week who was lobbying for control of more of my 401K funds. I noted that YTD the plan he manages was almost
-5%, while the portion I manage (like that blind squirrel noted above) is almost +5% YTD.
My most sincere advice is that having both $ in a 401K and a mix of real estate investment lets me sleep most nights with hope I can retire some day with a viable financial plan – fingers crossed!