I made it through the crash of 2008 without losing money for anyone that I was working with. I want to enable you to see things as I do, logically. When most people bet on what’s going to happen, they don’t stack the payout in their favor. I’ve been making my living by determining what is going to happen in the long run and betting on it. I hate being wrong, but am always looking for reasons to reconsider my investment hypothesis. I operate in highly inefficient markets. So do you. Here’s how you profit from it.
Look, I don’t come up with my own material, especially when someone else has already done it perfectly. Here’s how you manage through inefficient markets according to Adam with a few edits by me.
The only way to combat the inefficiency is to extend out how long you hold an investment for. The markets are inefficient short-term but fairly efficient long-term. Risk-aversion is quite high right now(and for some reason our space is classified as risky) but I doubt it will remain this high consistently for the next year or two. Remember that risk according to the general population comes from volatility and not from true risk, overpaying. At sometime during that two year span investors will get their appetite back and will take our stocks for a ride.
And when people start buying they may take that stock with a PE of 3 up to maybe a PE of 9, a solid 200% return. So what does it matter if you have to wait two years(or 3, or 5) to get it, it’s still an excellent return even five years out.
Should 200% returns really be easy to get? No, that’s why it usually takes a little patience to achieve them. The difficulty lies in finding the quality companies you are willing to stick with through thick and thin because it’s guaranteed your conviction will be tested more than once during the two year time frame.
And if the company drops to a PE of 1, sell something else that hasn’t dropped as much and load up(just as many of us here did a little over a year ago). Then when it returns to a PE of 3 you have a 200% return on those newly purchased shares. Even if you had to sell something with a PE of 2 in order to buy the stock with a PE of 1 it is worth it. It’s all relative.
I’ve been 100% invested through this entire downturn and am flat for 2010 because of the method mentioned above. And I was 100% invested for the entire economic crisis and had enormous returns using the same strategy.
But again the key component is you really have to believe in the companies you are invested in, otherwise it won’t work because buying more of something that has dropped 50% is not easy unless you are very confident in your analysis and research.
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