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What My Imminent Death Can Teach You About Investing

What My Imminent Death Can Teach You About Investing
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Thursday, 05 July 2018 06:25 PM Current | Bio | Archive

I’ve run the numbers, and I only have just over a year left to live… maybe two years at the outset.

You see, a few weeks back, I started eating healthy. Cutting out sugar, cutting back on my precious carbs, even upping my fiber intake.

I feel a lot better, and already my clothes are starting to look a little loose on me. And while I like to joke that someone should never trust a skinny market analyst, I don’t see the point in being overweight to the point of being unhealthy.

That’s the good news.

Here’s the bad news:

Since I started losing weight, I’ve lost about nine pounds. At the rate I’m losing weight, however, it’s quite clear that I’ll die within the next 18-20 months.

At some point in the next few months, I’ll go from being a bit overweight to an appropriate weight for my height. As the current weight loss trend continues, however I’ll go underweight somewhere around the holidays. At least my body will give out before my weight hits zero!

OK, now that I think about it, maybe I have a long time ahead of me to compose snarky blog posts about investing. Much longer than expected.

One thing’s certain: a current trend will eventually stop. It’s true that I’ve lost some weight, and I’d like to lose more. But at some point, I’ll reach an equilibrium between what I’m eating, the amount of exercise I’m getting, and how my body processes all that.

But in investing, one of the biggest problems people make is to assume that a current trend will continue forever. Oddly, however, whatever has the market in a tizzy one year might simply fall onto the back burner or be ignored another year. For instance, last year many analysts touted the death of brick-and-mortar retail. They didn’t even change that tune after Amazon (AMZN) bought up brick-and-mortar chain Whole Foods.

But a year later, it’s not an issue. And despite the high-profile bankruptcy of heavily indebted Toys-R-Us, retail closings are on a slower track than last year. There’s still some consolidation going on, but the thesis I made last year about how every retail of category will likely have at least one competitor against juggernaut Amazon seems to be closer to how the reality is playing out.

It’s not just a phenomenon with the retail space. In area after area, you see investors plow into anything rallying simply because it’s rallying. Last year cryptocurrencies got the lion’s share of interest, but only after the space had started rallying several hundred percent. It’s now fallen out of favor, and is starting to look attractive (at least some aspects of the crypto market).

This knowledge gives investors two big opportunities at any given time. First, what assets are on a seemingly unstoppable uptrend? And what assets have been beaten down so much that any reversal of fortune could lead to a huge rally upwards?

In short, where is there extreme fear, and where is there extreme greed? Avoiding areas of greed and buying areas of fear provide a broad guideline for enticing places to invest. Best of all, over time, greed gives in to fear, and areas where there are fear eventually ease.

Those aren’t metrics that can be coolly calculated to perfection. But that’s okay, as we live in an imperfect world. No amount of automated trading will work around emotional humans making emotional decisions about where to allocate their money.

Even an entire asset class can become overvalued—much of the bond market is arguably in that space at the moment, given the low yields there that are unlikely to match any inflation levels higher than today. Rising interest rates may make bonds look more attractive than dividend-paying stocks or cash under the mattress. But existing bondholders will see their bond prices fall in order for yields to rise. To some extent, timing can matter too.

Or perhaps an individual stock can become so universally hated—General Electric (GE) comes to mind at the moment, that any bit of good news could cause an immediate bounce in shares. Or, more likely, a new universally hated investment will emerge and shares will quietly start rallying, only to become a market darling again. An unloved company that pays a big dividend, like AT&T (T) does right now, can stay out of favor a long time and still deliver solid returns to investors thanks to sizeable cash payments.

Just remember: A trend is only your friend until it isn’t. Trends can change, seemingly overnight. When a trend starts to change, make whatever changes you need to protect your wealth.

However long I have to live—and it’s likely a lot longer than my current weight loss trend indicates—there will always be opportunities to find undervalued assets to buy and overvalued assets to sell. Finding them, and profiting from them, is tough but rewarding work, and all part of a life well lived.

Andrew Packer is a Senior Financial Editor with Newsmax Media. He currently writes the Insider Hotline investment advisory, serves as investment director for the Financial Braintrust, and writes the monthly newsletter Crisis Point Investor.

© 2019 Newsmax Finance. All rights reserved.

   
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AndrewPacker
Just remember: A trend is only your friend until it isn’t. Trends can change, seemingly overnight. When a trend starts to change, make whatever changes you need to protect your wealth.
death, teach, investing, stock
862
2018-25-05
Thursday, 05 July 2018 06:25 PM
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