What ER said is true about the yo-yo types who make incredible amounts of money on a lucky streak, but then double down and lose everything (and then some). Sometimes, they actually manage to come back again, but they usually crash again, too. Some might view this is “successful” because when these people are at the top, they can really fly high, but they can crash just as dramatically; and seeing this — more often than not — is what makes me want to do the exact opposite of what these people do, and what they invariably do is use leverage…lots of it (and get into really convoluted deals that don’t make any sense).[/quote]
Exactly. I’ve seen a lot of these types over the years. My feeling is this… it’s really difficult to really ‘know’ someone’s TRUE net worth. Many times it’s all smoke and mirrors and leverage and credit card debt fueling their lifestyle.
In other countries where I’ve lived it’s easier to ascertain one’s true net worth. Because no one is buying an expensive sports car unless they bought it outright. Or for the most part if someone “own’s” an expensive pad it means they bought it. If they take fancy trips around the world it’s because they have the cash for it.
The USA can be a land of smoke and mirrors where you THINK someone has a high net worth but it’s all a facade. They can live in a really amazing house in the best neighborhood, their kids can go to private schools, they take fancy trips and drive luxury cars…. but you know what? They could not only have NO net worth but worse they have NEGATIVE net worth.
I’ve met people over the years that kept trying to tell me that it doesn’t make sense to own outright and they could do better things with their money or earn more, etc. But the rub is that the vast majority of humans always over estimate their investment abilities. They think they can do better than anyone else. They think they are smarter than most people.
For those of you who haven’t watched “Queen of Versailles” – http://iurl.no/v1C Watch it! It’s amazing to see a guy building a $100 million dollar house yet not have any college savings set aside for his 8 (EIGHT) kids. All kinds of sharks like this out there.
Heck, I’m as guilty of this as anyone else and will be the first to admit it. Even people that are somewhat “conservative” in nature will make stupid investments that they didn’t think were stupid at the time.
So the trick is that those that say they will take $X money they have in the bank during the hard times to really have the money in the bank because in my experience there is always some “great investment” or “can’t lose investment” or “once in a lifetime investment property” etc. where you can take the funds you have and lose it.
Very, very, very few people have the discipline to hold large sums of money and ride out extremely difficult periods of time. I’m sure you will hear everyone and their brother tell you how much bloody money they’ve made in the last few years in the run up in the stock market. Funny how I always hear friends talk about their “genius stock picks” but their losers are never mentioned or come up until years later. (Human nature).
But what most people don’t tell you is how scared they were at the peak of the crises when their 401k’s were getting decimated. And anyone that tells you they knew things would rebound so quickly is probably lying.
Like I said….most people think they are better investors then they actually are. I’ve met VERY few people that are truly gifted and make insane returns year after year or more importantly decade after decade. One is Warren Buffet and another is Steven Cohen. Although it looks like now there is a reason guys like Cohen could justify making 30% annual returns for decades.
People will go on and on telling you about their best and greatest returns on investment. While I’ve made some GREAT investments I try not to think about those. What I try to always remember is my WORSE investments.
An example of one of my worst investments. I was short selling stocks like Bank of America (BAC) for 2 years along with many of the financial companies back at the peak. I saw the crash coming and knew they were going to get killed so I started short selling them and made lots of money doing that.
Well, once banks started folding or getting sold and bailed out, I thought I was smarter than everyone else. I told myself, “you can’t lose!”. Long story short….I ended up investing in Washington Mutual (WAMU) 2 days before it went under.
I told myself that there was no way the government would let them fail. I saw other banks like Wachovia being bailed out and quickly sold so I figured that the same would happen to WAMU. I’m not sure if there are any WAMU investors on the board but if so you know how things turned out.
The FDIC handed over WAMU to Chase and the investors lost out. It was the quickest $250,000 I ever lost (literally in a few days).
So again, I saw think about your worst investments rather than your best investments. I’m as guilty as anyone else as making stupid investments or trying to “catch a falling knife”.
I mention this story because I say again that most people simply don’t have the discipline to hold cash during great investment opportunities. Things in principle sound great but it’s another thing in real life.
Of course I’m not saying there aren’t any totally disciplined people out there that can do it when they say they would rather not pay off their primary house and leverage it and they can always make guaranteed money. In reality, we all have hiccups.
I consider myself a VERY disciplined investor and I’d like to think I’ve made some very wise investments. But my point in my diatribe above is to point out that we ALL make horrible investments or decisions to use our money. Whether it’s that can’t lose investment, that great rental/investment property or making a loan to a dead beat family member.
