Investing at Times of High Risk

Many of you are expecting me to say that now, given the economy, the administration, unemployment and other factors, it is a high risk time to invest. The opposite is actually true – now is a relatively low risk time to invest in quality assets and here’s why:

There is a significant difference between feeling safe and actually being safe. One can feel safe because one actually is safe, but one can also feel safe by ignoring facts, pursuing a completely selfish agenda, from lack of careful thinking and consideration, as a result of overrun emotions, sickness, and/or lack of rest or nourishment. One can only be safe when one is actually safe – it’s the only option as it pertains to the latter.

This is important because many people feel safe when they are doing the same thing(s) lots of other people are also doing. Whether or not the crowd is actually correct, “there is safety in numbers” goes the old saying. While this is true in football and armed conflict, it is largely false when it comes to investing. The riskiest time to invest is when the majority thinks it’s safe. The safest time to invest is when the majority considers conditions too risky.

In other words, the times when investing safety exists to the greatest extent is not when the most people are actually investing. Consequently when one sees the markets rising every day by greater and greater margins (obviously not happening right now) that is the most perilous time to invest. When most people are worried, well that’s a pretty good sign of safety.

The best time, the lowest risk point, and the safest time to invest in quality companies is when there is a tremendous amount of worry and uncertainty – in other words when most people FEEL UNSAFE.

Unemployment is currently unusually high. Is that normal or abnormal? Obviously abnormally high. If it were normal what would the economy look like? Substantially better – because more people would be buying things, more people would be investing, etc. Since things run in cycles, what is the next phase in the cycle of unemployment? The next phase is improvement. How does that impact investments? Very positively.

Yes, but what about inflation? Aren’t we going to soon have high inflation? We only have inflation when too many people are spending too much money chasing too few goods and services. How can we have high inflation when so many people are not working? We can’t. And even if we do have high inflation, this condition is excellent for some investments that just might surprise you.

What about the administration? In every situation there are opportunities to make money. This will be the case regardless of which party is in office.

What about interest rates? While interest rates are likely to rise from the current rate of essentially zero, rates are going to remain low until we have inflation, and even then, given the amount of government debt in the U.S., interest rates are just as likely to stay abnormally low as anything else, because it saves the government vast amounts of interest payments.

Millions of people loose money in the investment markets for no other reason than they invest when they feel safe, instead of investing when they are safe. What has been your pattern?

Have you acted on nonsensical rules like dollar cost averaging and asset allocation which have you investing in the wrong things, at the wrong times? These principles have you investing completely off cycle to when it is actually safe to invest. Isn’t it about time that you got on cycle and made money in your investments?

Get started investing now before the economy completely rights itself and it is too late.

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