Investing In Fear By Overcoming Fight or Flight
Investing in fear sounds dramatic.
However, Warren Buffet’s saying, “Buy on fear, sell on greed,” or Baron Rothchild’s famous quote, “The time to buy is when there’s blood in the streets,” couldn’t be more true.
Some of the greatest investors (and wealthiest people) in the world made their riches during times of fear.
That’s because the average person acts crazy when they are put in a stressful situation. Fear, which causes extreme stress on a person, results in fight or flight instincts.
The problem is that our instincts are meant for physical survival, not financial survival.
For example, what would you do if someone pulled a knife on you?
Most people would try to run away.
A smaller number of people would do some crazy karate move and kick the knife out of the assailant’s hand.
Really, these are the two options that 99.9% of the population would choose. Fight or flight. That’s what we humans are programmed for. It’s basic survival.
But our world is much, much different than the caveman days where we clubbed our food (and enemies) over the head. We have sophisticated ways of living and highly intelligent conversations with each other.
Fight or flight instincts will get you burned in the financial market. And I’m not talking about just stocks. Real estate, collectibles, gold, and all kinds of investments are heavily influenced by fear.
When there is no fear, people buy. When there is lots of fear, people sell.
When the market is rising, people want to buy buy BUY.
When the market is falling, people want to sell sell SELL.
That strategy it totally backward. You should buy when the market has fallen so you can purchase assets and investments for a discounted rate. You should sell when the market has risen so you can bank your profits.
Easier said than done, of course. We have that tiny thing between our ears that just makes us do crazy things! It happens to all of us.
But, if we try hard enough, you and I can avoid doing crazy things! (At least not in the financial space!)
Honestly, this is something I struggle with on a daily basis with my investments. I read all kinds of articles and news stories that get me all fired up. I forget to think rationally and I get wrapped up into stories, whether they are true or not.
Back to the knife example… what do you think that .1% of the population does? They are not running and they are not fighting. They use neither flight or fight.
This .1% uses some kind of negotiation. Both with themselves and with the person holding the knife.
The initial feeling that we all would get when confronted with a knife is, “I don’t want to get stabbed.” That’s really all we’re thinking about for the first millisecond.
Then most of us go straight to flight or fight.
That .1% goes to another reaction. They might think, “Hmmm, this knife holding person seems pretty desperate. They are obviously willing to risk it all. I wonder if they’d be interested in working for me? I wonder if I could somehow turn this situation into a positive for both of us?”
So, instead of getting stabbed, robbed, running away, or a combination of all three, that .1% person might say, “Hey, what if I just gave you double what you want? You want a hundred dollars out of my pocket? Why don’t I give you two hundred dollars? And I’ll give you two hundred dollars every week. I just need you to do x, y, and z…”
Well, what’s going to happen here?
Either the guy holding the knife is going to say, “Screw that, just give me your money now.” Or, “ummm, ok… what do I have to do to get $200 per week?”
Here is what I am getting at… People who are successful do not get wrapped up in fear. They don’t have a fight or flight reaction.
They react to create the most benefit for themselves, not simply to survive.
So, keep this in mind. Think about how you react to something in the financial world that causes you fear.
Now let’s look at some real world situations where people are absolutely freaking out.
I want to bring up a quick update about Colombia… it has to do with the next opportunity I am going to point out.
I have mentioned investing in Colombia many times. Not only do I think the country is a great place to spend time, but real estate is selling for dirt cheap.
Most importantly, I see a huge opportunity to profit from this cheap real estate. And I’m not just talking about this opportunity… I’m putting my money where my mouth is. I just closed on an apartment that I am projected to make at least 10% returns on. But, I think I’ll be able to sell this apartment for twice as much as I paid in a couple years.
I’m not saying that the market is going to double in price, but because of the currency arbitrage opportunity that exists right now, I can personally double my money.
Now, I just recently closed on this apartment, so I have not owned it for very long. But, real estate has already appreciated in the area and more importantly, the currency is the second-best performer of 2017:
Source: Bloomberg
I’ll have a lot more about Colombia soon, with an incredible opportunity for everyone.
For now, look at the currencies at the bottom. See the British pound? Look at the Mexican peso and Turkish lira, which have been absolutely slammed.
I know that I will get tons of emails saying, “Cody, you’re crazy to invest in Turkey! Do you know what’s going on over there?”
First, I know exactly what is going on over there, so no need to email me about that.
Second, this is exactly what happened when I first started talking about Colombia several years ago. My friends said, “Cody, you’re crazy to invest in Colombia! Why are you even traveling there? You’re going to lose all your money!”
Well, guess what… it’s only been a couple of months, but I’m already up on my investment. And really, I don’t think Colombia has even begun to show it’s potential. And, if for some reason it doesn’t appreciate, a 10% yield ain’t bad.
Back to those currencies at the bottom of that chart. Look at the Turkish lira. I mean, that is a huge move for a currency in a short amount of time.
And I expect it to move down even further over the next year. This is going to cause a lot of fear for many people. We can have either a fight or flight reaction, which won’t help us at all, or we can think of ways to benefit from these huge currency moves.
I know exactly how I will eventually take advantage of this opportunity, but I’m not ready yet. I’m going to be patient. I’m not going to get wrapped up in the fear and I’m going have a reaction other than fight or flight.
That’s why I listed Turkey as one of the Best International Real Estate Buys For 2017. Where others panic, I see opportunity. No fight or flight.
