On March 10, 2000, while riding on the wave of the dot-com frenzy, the Nasdaq Composite Index hit an intraday high of 5132.52. We all know what happened next – the dot-com bubble burst.
By October 2002, the index had fallen 78.4% to 1108.49. Retirements and paper wealth went up in smoke. In the aftermath, investors promised themselves that they wouldn’t follow the herd next time and fall in the same trap. They would never get caught up in another frenzy.
In the aftermath of the dot-com bust, as many investors picked up the pieces from the disaster, they noticed something about certain friends and colleagues. These friends and colleagues were calm and collected throughout the whole disaster. It turns out that they hadn’t got caught up in the dot-com craze and now were untouched by its collapse.
These wise investors touted investments in assets with sound underlying fundamentals. They preferred income-producing tangible assets that generated cash flow even in a downturn – the kind that continually appreciated over time and backed by a hard asset – the kind where you would never watch 78% of your wealth go up in smoke.
The dot-com investors told themselves that next time they’d be in the shoes of their wise investor friends and colleagues – by investing in sound cash flowing alternative assets. Next time never came for these investors.
Like members of a herd, they got caught up in the next craze – the mortgage-backed securities craze fueled by subprime mortgages. Back into the stock market, they went, looking to cash in on the latest craze.
We all know how that story turned out as well. The collapse of subprime mortgages led to the bottom falling out from under these mortgage-backed securities leading to the banking collapse in 2007 and the 2008 Global Financial Crisis.
In the aftermath of the Financial Crisis, the Dow shed more than 50% of its value – once again vaporizing retirements and millionaires with it.
Many of the investors who had barely recovered from the scars of the dot-com bubble were now going through an even worse disaster. With no income-producing assets to see them through these dark times, many suffered financially as many lost their jobs. The welfare rolls swelled as a result.
Once again, investors told themselves that they would never let something like the Financial Crisis happen to them again. Next time, they’d be wiser. They’d follow the examples of the sophisticated investors who built their portfolios on non-Wall Street assets – alternative investments shielded from the volatility of public equities.
Once again, the investors who followed the herd down the mortgage-backed securities toilet liquidated their assets at fire-sale prices. Gun shy, these investors waited to get back in the game, but they waited too long to get back in the game, and they got back into the wrong game.
In the aftermath of the Financial Crisis, foolish investors went right back to Wall Street, where they got caught up in the latest buying frenzy – culminating in the Dow peaking near 30,000 mid-February. Then COVID-19 hit. Within a month, the Dow dropped more than 35% in the aftermath of pandemic panic.
The problem with following the herd is that most investors liquidate at rock bottom prices and sit out too long. By the time they get back in the game, they’re working from a deficit, so it takes them that much longer to get ahead – that is, if they continue to follow the herd.
After the Financial Crisis, if investors had gotten right back in the game and went against the herd and invested in alternative investments that were uncorrelated to Wall Street with proven and reliable income streams backed by tangible assets, they would have been unfazed by the recent drop due to the Coronavirus.
Instead, many who were still recovering from the last crash are now back in a hole from this most recent crash.
Next time is here again for these investors…
Are they going to follow through this time to make sure they’re never in this position again? Or will they wait too long and overpay to get back in the Stock Market game to only go through all of this again?
It’s always next time for sophisticated investors.
While foolish investors keep saying “next time,” they’ll do this and that, sophisticated investors are already doing it:
- They never let dot-com bubbles, Great Recessions, or COVID-19 panics make them look like fools.
- They’re always prepared.
- They never have to tell themselves that the next time will be different.
- They invest as if it’s always next time for them. Their guiding investing principles are such that they never get caught up in market panics, as we’ve seen in the past month.
NEXT TIME IS HERE ALREADY
START BUILDING NOW WITH RECESSION-PROOF ASSETS
To wise investors, there’s never a single right time to invest in income-producing tangible assets like commercial real estate, agriculture, energy, and productive businesses. To them, it’s always a good time because they know that these assets will always appreciate over time. They need to be allowed to grow.
If wise investors were allowed to meddle with their assets as mainstream investors meddle with their stocks, both groups would see the same volatile results.
But that’s what sets wise investors apart from foolish investors.
They invest in the long-term because they know it always works out in the end, and they know these assets will give them life-sustaining cash flow even as those around them lose their jobs.
Don’t wait until next time to do what you should be doing now – embracing assets that will have your back through the roughest of times and not abandon you.
Michael
