Selling at All-Time Highs Is Now Considered Contrarian!

by FI Fighter on September 24, 2016

in Real Estate Thoughts, Stock Investing Thoughts, Thoughts

be-fearful-when-others-are-greedy-and-greedy-when-others-are-fearful

As I peruse through many of the early FI blogs across the blogosphere, I am somewhat struck to see the number of sell orders that have started to pop up. In years past, most everyone was aggressively hitting the “BUY MOAR!” button, enjoying this wonderful bull market that first took flight in 2009.

Well, as fun as the ride has been, in life, as we all know, “All good things must come to an end…

Bummer.

I’m sorry aging old bull market buddy, but you are now operating in your twilight days and most everyone out there is starting to come around and make the same realization…

But what surprises me (somewhat) is that when I’m reading through the comments section of many of these blogs, people are saying ridiculous things such as the following:

 

  • “You’re making the biggest mistake of your life!”
  • “You’ll regret this decision, I’m sure of it!”
  • “Bold, bold, bold move!”
  • “You’re getting way too emotional and overreacting!”
  • Etc…

 

WTF, mate!?!

I’ve got to admit, reading those type of comments can’t help but make me chuckle…

 

Are people seriously delusional, or what?

 

Anyone selling general equities, bonds, and real estate today is exiting off the stage and booking profits at record high prices and valuations!!!

If anything, these sellers should be commended for a job well done! Wow, you were able to “buy low and sell high!

 

  • Fuckin’ A!
  • What a g!
  • You’re a stud!

 

Well, those are the type of comments that I hear in my head when I’m first reading through many of these posts…

 

Anyway, you know we live in a crazy world when selling assets at market tops makes you a black sheep and contrarian…

 

Just look around you and try and make sense of the world we currently live in right now:

  • Zero Interest Rate Policy (ZIRP) going on for a good decade…
  • Negative Interest Rate Policy (NIRP) spreading like the plague worldwide…
  • Investors buying bonds for appreciation and purchasing stocks for income (that’s so ass backwards! Seriously, spend even just ONE minute thinking this through…).
  • S&P 500, Dow Jones, Nasdaq, all hitting record highs!
  • Prime real estate across the globe in super-bubble territory!
  • Bonds trading in super-duper-bubble territory!

 

All this while global economic growth has grinded to a halt… Wages are down, earnings are declining, and Main Street is suffering mightily while Wall Street keeps prospering more and and more and more…

 

This will not end well… It never does…

 

When it comes to investing, you will fail NOT because of:

  • Lack of motivation.
  • Lack of passion.
  • Inconsistency.
  • Inability to save aggressively.
  • Boredom.

 

No, you will fail because of:

  • Being too motivated.
  • Having too much passion.
  • Investing like clockwork (rain or shine… even too much shine!).
  • Investing way too aggressively.
  • Far too much interest.

 

Over the years, I’ve observed the thoughts/actions of many, many, many investors (including myself)… What I have found is this — Investing is a drug… No scratch that… Investing is the ultimate drug!

The lust for greed will damage you far greater than any drug ever could…

When people start making money (even just morsels), they don’t ever want to fuckin stop… Their brains buy into the belief facade that incremental progress is somehow the path to financial freedom… These investors forget that markets behave like sine waves (over the long-term), and go both up AND down.

Nope, when you’re on drugs, you start believing in some crazy ass shit…

  • Straight-line perpetual growth!
  • Buying aggressively at market highs is the prudent thing to do!
  • Selling at market tops is BOLD AND RECKLESS!
  • Risk vs. Reward… Who needs to worry about that crap? The only risk is in NOT buying and siting on the sidelines like a loser!
  • I’m not only indestructible but an investing genius!!!

 

At market tops, fear is considered contrarian while greed permeates and is the default action of most investors.

 

At market bottoms, greed is considered contrarian while fear permeates and is the default action of most investors.

 

Think about it…

 

Anyway, at this point I know that I sound like a broken record, so I’ll just leave you with the following comment that I’ve been plastering across the web this past week (I network with lots of investors).

 

It is 10x more difficult to buy at market bottoms for experienced investors and at least 1000x more difficult for new investors. What this means is that the opportunities that present themselves during the Depths of Despair are truly “life changing”. You can make $1 million+ in ONE cycle! If you have to look for “needle in the haystack” type of deals, it’s just not worth doing… Too much work for too little reward. Patience and doing NOTHING is what trips up most investors b/c if you’re too active, at market bottoms even if you want to buy, you have no cash!

 

Well, I know that I have no street cred, but Warren Buffett sure does:

“Be fearful when others are greedy, be greedy when others are fearful.”

 

Everyone knows it… How many investors actually practice it?

 

Fight On!

 

Photo Credit: Kapialust.com

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{ 13 comments… read them below or add one }

1 Midwestern LandlordNo Gravatar September 24, 2016 at 5:55 pm

Very true and excellent points. I wish I had more of this knowledge when I was young and reckless in the market. I learned the hard way.

I would guess that there are a lot of dividend investors or 401K investors that look at what you are doing as reckless. IE timing the market, heavily invested in select industries, stock investing, buying low cap stocks, etc. The funny thing is, you can’t argue with results. When someone is up over 100%, you just can’t try and call them out because you believe it is reckless. How well would you be doing if you took the advice of never having more than 10% of your portfolio in any one industry sector, IE precious metals? OK maybe but not nearly as well as going with your conviction and recent results. Yes there is some risk to this strategy but you were comfortable with the risk / reward curve and it has worked out well to date.

Said all that, even though we all agree that we are in the late stages of a bull market, it clearly does not apply to all investments. For instance, you recently stated that precious metals are probably in the 3rd inning. That does not sound like bubble territory even though the overall market is probably in one. Sound real estate in my area has not increased in value much in the past several years. There is an abundance of quality deals in my area with great long term interest rates that one can obtain. Same prices (or similar) to 2009, 2010, 2011, 2012. No bubble here. So one absolutely has to look at what their wealth is concentrated in. If it is in a bubble area, probably a good idea to sell or diversify.

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2 FI FighterNo Gravatar September 24, 2016 at 6:14 pm

Midwestern Landlord,

As always you make great points and I appreciate your comments.

Yes, as anyone who has been following this blog for awhile knows by now, during the period when I switched out of general equities and into precious metals, I received many of those same comments that I highlighted above… In short, many readers thought that I had lost my mind by chasing after an asset class that was universally hated and trading at record low valuations…

In terms of portfolio concentration, that’s something that will differ for each investor and you simply have to do what you’re comfortable with. I was willing to bet big b/c I had absolute conviction that I was indeed buying quality assets for pennies on the dollar…

In terms of stocks/real estate, yes, it’s difficult to generalize the group entirely… With real estate, I completely agree that certain markets, like many found in the Midwest, are still selling at affordable prices/valuations… When I say real estate is in super bubble territory, I’m more speaking of houses out in expensive areas like Bay Area, Hong Kong, Vancouver, etc…

This is a great chart showing where things might roughly be at:

http://www.fifighter.com/finance/real-estate-updates/2016/09/real-estate-rental-property-sh-1-update-september-22-2016/

With that said, like the saying goes, when the tide goes out, “the baby gets thrown out with the bath water.” As great as the deals are in the Midwest right now, I have a feeling things will get a whole lot more affordable if the broader markets correct/crash… If China real estate, or SF Bay Area, HK, Vancouver, etc. start to implode, the entire sector will get hit… Nothing will be spared, which is why I’m reluctant to jump back into the Midwest at this time, even though I do feel like there’s way more value to be extracted in those markets.

And the same applies to stocks… Uranium is dirt cheap right now and could go lower if the S&P 500 craters… Same for copper and other base metals…

I would just argue that precious metals would be the exception to the rule b/c by nature they are the “safe haven” or “fear trade”… In a liquidity event, the precious metals mining stocks could fall too, but I would imagine it would be short-lived… And in a world of negative interest rates, gold is the best place you could possibly be (particularly physical bullion stored safely away in a private, secure vault).

All the best!

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3 Roadmap2RetireNo Gravatar September 24, 2016 at 6:00 pm

Fantastic post, Jay.
Buy low sell high is the most basic principal when it comes to business and investing but it is a sign of the crazy times when you are considered a contrarian for selling at all time highs. It’s truly mad out there.

Some excellent points made. Most people know these principles in theory or repeat the quotes over and over but almost never practices it. It’s what makes most investors lose their money in the market and acting on those emotions at market depths. When markets have crashed, cash provides the ultimate freedom to do whatever you want — what’s the worst that will happen? You may miss on an opportunity and you will have to live with it. I will take that any day.

I don’t know where the market will be next week, month or year — but I know that I have a lot of options available holding cash now.

R2R

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4 FI FighterNo Gravatar September 24, 2016 at 6:36 pm

Sabeel,

Thanks for stopping by buddy! I completely agree with you there — It truly is a mad world out there!

Yup, those quotes are repeated and regurgitated so often that I think most investors just gloss over them now and don’t even remember what they are supposed to mean. That’s unfortunate because there’s so much wisdom behind them, which is how they became staples in the first place! Most investors are completely ignoring risk vs. reward right now…

In regards to cash, it’s a terrific place to be right now. Opportunities come and they go but there is ALWAYS another train due for arrival at the station.

The patient investor will be the one who comes out ahead when all is said and done… And when opportunity knocks, you had better have cash at the ready! Because if you blink, you will miss it completely!

Take care!

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5 JCNo Gravatar September 24, 2016 at 6:21 pm

I sold my entire portfolio last month and started buying up shares of lithium… after discovering this site. At first I had some mixed feelings as many people around me, including my financial adviser, looked at me with a half smirk almost saying, “you’re making a mistake” when I told them. I’m glad I booked the profits. Late to the party but I also added some gold and silver into the mix. Hopefully this all works out.

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6 FI FighterNo Gravatar September 24, 2016 at 6:43 pm

JC,

I’m very bullish on lithium over the long-term, but I will add that my only concerns there are the event of another global financial crisis, in which case, I do not think lithium will be spared… In other words, if we have a market sell-off event, lithium shares will tank as well…

This partially explains why I’m much more heavily interested in early-stage exploration companies within the lithium space… With explorers, they add value by simply drilling… Their burn rates are minimal, they have few employees to pay, and no debt to service… If things get really bad, they simply stop drilling and go to sleep for awhile… Further, the market caps are already relatively small, so they can only be chopped up so much more… Obviously, early-stage exploration carries with it many other risks that an investor needs to consider, so due diligence and research into the best projects is absolutely needed.

In any case, I’m expecting good things out of the lithium space over the long-term.

In a deflation, though, cash and precious metals are the only places I feel safe. But we’ll see what happens!

All the best!

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7 bethNo Gravatar September 24, 2016 at 6:58 pm

The ex-dividend date for several of my long term hold stocks is September 28 and I have been thinking very hard about selling on September 29. They have all gone up in price and I could take a small profit.

The things I am considering selling are all great companies that I will be watching for some sort of pull back so I can buy even more shares and get the dividends flowing again.

I have some cash ready to buy now and I can add to it but things are just priced too high right now and I need a stock sale to put my money to work.

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8 FI FighterNo Gravatar September 25, 2016 at 1:45 pm

Beth,

Yeah, it’s tough trying to predict what may or may not happen in the future. You’re going to have to assess your own particular situation and determine the best course of action for your own portfolio and investment goals.

If you’re on the fence with selling, sometimes the happy compromise is found somewhere in between, which I touched on in the previous post — Sell just a portion of your portfolio and lower the existing cost basis on your stock positions.

Right now, lots of investors are expecting turbulence and perhaps a meaningful pullback/correction this fall season, particularly after elections… But there are no guarantees anything like that will occur, and who knows, perhaps the markets all head higher from here on out…

Nobody ever knows for certain… I like to look at things from risk vs. reward, particularly by looking at where we are in the cycle… No doubt, stocks aren’t currently cheap right now, and most general equities are sitting at lofty valuations, or at/near all-time highs…

Quite simply, I like buying when assets are selling for dirt cheap and for pennies on the dollar. With general equities, that’s clearly not the case today.

All the best!

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9 TawcanNo Gravatar September 24, 2016 at 9:18 pm

Great post Jay, certainly gets me thinking a bit. 🙂

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10 FI FighterNo Gravatar September 25, 2016 at 1:47 pm

Tawcan,

Wishing you all the best buddy!

Thinking is good, it prevents us from making rash decisions 🙂

Take care!

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11 Dividend HustlerNo Gravatar September 25, 2016 at 7:18 am

Thanks for the post Jay.
I wish I had followed you in buying all the Gold stocks and precious metals. I shoulda listened to my wife When gold was at the absolute bottom. Being very loyal personally, it has cost me a lot of money sticking with “only” dividend growth investing.
Now, I’m gonna try to have a more open mind. Thank you for being contrarian and glad I’ve met you. Cheers bro.

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12 FI FighterNo Gravatar September 25, 2016 at 1:52 pm

Tyler,

Yeah, the gold sector turned really quick this year, it was almost like if you blinked you would have missed that first leg up.

No big deal, opportunities come and go all the time… Earlier this year, it was extremely difficult to see the landscape changing, and practically no one predicted that the bottom was in for gold on January 19…

Goes to show how these things work, I guess… Markets will always surprise us in ways we can’t anticipate… So, I’ve kind of learned that if you have a good idea/buying opportunity, you really need to tune out the noise and go with your gut instincts…

When gold was down, practically the entire world expected it to drop below $1,000/oz… Everyone was waiting for that and it just did not happen… In bear markets, when prices are declining, it takes a ton of conviction to go against the grain and convince yourself that the pain is only temporary and that the tide will turn again someday…

It’s always darkest just before dawn… But you’re in a wonderful spot. You’re flush with cash (well you will be soon enough, anyway), so just sit tight, wait patiently, and the next train will be arriving at the station shortly… There’s always another train just around the corner!

All the best!

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13 Investment HuntingNo Gravatar September 26, 2016 at 2:02 pm

Whenever I sell a stock , I get comments like the ones you referenced in this article. Even though I’ve sold, I’m still here. No regrets. I’m making more money selling options on the freed up cash from selling my stocks.

And I’m buying the sames stocks I sold as they drop. Today, I bought 100 shares of TGT for $7.70 less than I sold it for 2-months ago.

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