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Putting the Clamps on Greed

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I’m only human, and it’s human nature to want more. Even when things are going well and we are successful, there’s always that burning desire that pushes us to achieve more.

  • More money.
  • More fame.
  • More glory.

However, when I reflect back and look at what I’ve been able to accomplish so far in this journey to early FI, I can’t help but appreciate everything that has happened. I’ve been very fortunate to have been caught in the right place at the right time.

I started investing in both dividend stocks and real estate in 2012. Thanks to the combination of high earnings and high savings rate (80%+), I’ve amassed a net worth of over $750,000.

Even though I got started at a great time, I’m smart enough to know that I’m more lucky than I am good. And as we all know with investing, what goes up will always come crashing back down. In other words, there’s just no need for me to keep pushing the pedal to the metal. Rather, I should be more than satisfied with where I’m at and start planning more defensively.

Upmarket

If the markets continue to surge and I do absolutely nothing, I come out ahead. I own a large number of assets in real estate, index funds, individual stocks, etc. So, if prices keep climbing up, I only stand to benefit.

This line of thinking is one way to tame greed.

Downmarket

Where I’m at right now, the real big fear is in the event of another downmarket. As an investor who relies heavily on leverage (to the tune of over $1,000,000) it would only make sense for me to worry most about another market collapse.

To this I will say, yes, that is absolutely true and that is where my mind is at right now. When I mention my plans to walk away from the 9-5 this year, I always hear both sides of the argument. Some folks can’t understand why I’m even still employed and argue that since I’m so frugal, I already have way more than I will ever need…

On the other hand, there are much more successful investors than me who have “been there and done that.” Their advice is to keep milking the high income a bit longer to build up even more cash reserves.

I can’t say I know what the right answer is, but like most things in life, I’m going to guess that the correct answer lies somewhere in between. So, my plans right now are to eventually return back to work and save up some more money.

If I can complete a cash out refi on Rental Property #1, I’m going to speculate that I’ll be at close to $200,000 combined in cash, dividend stocks, and emergency funds prior to calling it quits for good. This should be ample reserves for me, in the event things don’t work out as planned during early FI/pretirement…

Tuning out the Noise

In my own situation, now is the time to tune out the noise and ignore all the greed that is floating in the air. Yes, I did recently acquire another Bay Area rental property, but that’s going to be my final move.

I am done “swinging for the fences.

Maybe I’m pushing the envelope too much with the latest Bay Area deal… time will tell. But regardless, I am going to remain most apathetic to the market if prices keep on climbing up.

  • No more speculating on future appreciation.
  • No more house hunting and attending open houses (with the intent to buy!).
  • No more bidding wars.
  • There will NOT be “one more deal.

Be Careful

Now that times are good, everyone is out looking to make a quick buck; there are more investors now than perhaps ever before!

The sage advice of “Be fearful when others are greedy, and greedy when others are fearful” should ring most true today. It’s astounding how quickly we forgot about the most recent economic meltdown!

As they say, it’s easy to make money when you already have money because it’s so damn easy to take advantage of human emotions. When times are GREAT, it takes no effort to lure ambitious greedy investors into taking the bait and investing into inferior products and services.

I’ve always believed that wealth seminars and “gurus” offer no real value because all the information you could ever need to build wealth can be found for FREE on the internet. Nonetheless, times are good again, so if you were ever going to attempt to con someone out of their hard-earned savings, now’s the time to do it! My guess is you’ll find more wealth experts and financial planners today than ever before… After all, ANYTHING you buy is bound to go: Up, Up, and Up!!! Everyone offering financial advice today looks like a freekin’ genius…

Fear Rules

Sure, you can make money in an upmarket, but you can make a ton more in a downmarket. For myself, a lot of the side hustle deals that I funded in the last two years were made entirely possible by the gains I made during the downmarket. Yes, ideally, I would be able to replicate the same type of results with these side hustle deals, but realistically, they will need a lot more time to season. As a long-term investor, I’m perfectly fine with that… But I rationalized that going into the deal… There are many others who are trying to get started TODAY and are hoping to score the same type of returns I got in 2012… I hate to be the bearer of bad news, but yesterday’s deals are gone…

With that said, I should add that I haven’t had fun investing since 2013. Greed can drive us to do some zany things, but when it comes down to it, as an investor, I much prefer to invest in a time of fear. In times of panic, you’ll be able to find:

  • Short-sales, REOs will be a dime a dozen.
  • No bidding wars…
  • The major stock market indexes will be bleeding profusely.
  • Individual stocks will be entering “oversold” territory seemingly every week (I still recall this awesome opportunity to load up on Norfolk Southern (NSC)!!!).
  • Most people will be sitting on the sidelines.

When you have all of the above, that’s a strong indicator that the market climate is ripe for the picking. Today, I’m seeing none of that, and everyone and their grandmother is trying to get into the investing game.

As an investor who has seen both ends of the spectrum, I will say this: Greed is highly seductive, but fear will take you for the most awesome ride of your life. If you invest during a time of fear and make the right moves, you may never need to work again.

Closing Thoughts

I’m not immune to greed and I’ve made my fair share of “boneheaded” investment moves. Yes, sometimes I will take chances and swing for the fences… I’m not above all of that. I took a flyer on Tesla Motors (TSLA) and that worked out magnificently. Recently, I dropped about $20,000 into Alibaba (BABA) and that move has not yet panned out so well…

You win some and you lose some. The important thing, though, is to not lose sight of the big picture. For myself, this means putting a clamp on greed! I have an entire portfolio to protect, and the downside right now far outweighs any upside potential left in today’s market.

So, I’m going to transition into becoming a really, really boring investor. Yes, I’ll still invest and purchase stocks… but I’m going to focus on large cap, stable companies. Yup, this means putting funds back into dividend growth stocks! Maybe some index funds… Most importantly, I will stash lots and lots of cash.

Because when the fear (good times!) does emerge again, and it always does, I’ll be ready for another thrill ride!

{ 12 comments… add one }
  • No Nonsense LandlordNo Gravatar January 31, 2015, 3:37 pm

    The old saying, ‘slow and steady wins the race’ is one to heed. Take well managed risks, and you will find it works best. Otherwise, the Roulette table is a quick way to avoid the slow and steady bleeding that a poor investment will cause.

  • Asset GrinderNo Gravatar January 31, 2015, 8:30 pm

    Great article man. Yes things are going good for everything other than oil and Im gettin a bit nervous. Wouldnt be a bad idea to put some bucks into high yield corp bonds or some preferred stock.

  • Financial SamuraiNo Gravatar January 31, 2015, 9:49 pm

    When the tide goes out…..

    It’ll be interesting!

  • Tyler TranNo Gravatar January 31, 2015, 10:22 pm

    Great article FI.
    It’s nice that you’re taking a breather to reflect and think about things. Sometimes, in this go go go economic society, we forget to slow it down and re think things and we get burned out. I totally understand where you’re coming from. Im in the same boat as you. I love money and I’m obsessed about reaching Early Financial Independence too however I’m gonna hustle it out for the kids. Give them the best education and life. Anyways check out my site sometimes.
    Love Tyler.
    Keep up the great work.

  • No More WafflesNo Gravatar February 1, 2015, 5:02 am

    FF,

    Great article! Even though people have been predicting doom and gloom in the market (especially here in Europe) for a good two to three years now, the only way has been up. As such, everyone now looks like a brilliant investor, myself included.

    I’m really curious to see the shake-up that a downmarket will bring about in our PF blogging community. Who will ride out the storm? Who will crash and burn? Interesting times ahead, but until then I’m definitely going to enjoy the upmarket as much as I can.

    Good luck over there,
    NMW

  • MarkNo Gravatar February 1, 2015, 9:44 am

    Don’t be so content with believing your cash is safe. Your right on target when you speak about all of the rising assets. Why do you not put the dollar in that category? It has had such a remarkable run up don’t you think it will correct too? Diversify with Swiss francs and renembi.

    Thank me in a few years.

  • A Frugal Family's JourneyNo Gravatar February 1, 2015, 2:14 pm

    Great post FI Fighter. Its definitely good to sit back and reflect once in while. We are also thinking of dialing back our risk meter further. Although we may still invest in some individual stocks, if the story is compelling, we intend to move more into ETFs and Mutual Funds this coming year. The intent is to reduce our risk while also putting our investments more into auto-pilot. Since my promotion in August, its been really hard finding extra time to research companies and also maintaining our blog. My fear is that if we continue down the same path, something will inevitably suffer.

    Thanks for sharing this article. Best Wishes! AFFJ

  • Gen Y Finance GuyNo Gravatar February 2, 2015, 9:03 pm

    I absolutely agree that the risk/reward at this stage in the business cycle favors the downside. But I think there are some opportunities in Oil right now after a significant correction.

    I tend to like buying into weakness and selling into strength. You know buying when there is blood in the streets.

  • Felix MoneyNo Gravatar February 5, 2015, 10:42 pm

    I’m a small time stock investor, compared to you, actually I’m more of a speculator, and I’ve tried not to get greedy. That strategy has served me well so far, the latest example being Apple. I’ve been buying Apple stocks all the way down to the bottom last year, and then all the way up again. I’ve told myself I’ll sell as soon as they come out with the iPhone 6, and I did. Although it went up more after, I’m glad I could stay on the safe side so far 🙂

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