They might tell you they’re patient.
But almost everyone cannot wait. They all want to make a quick buck. They all want a reward now, rather than something much more substantial later.
The easy example to use is cryptocurrencies.
Yes, some got in because they believed in the bigger picture of decentralisation power and control. But I’ll bet far more jumped in simply because the price of bitcoin and other similar tokens was rising.
Yet, we all know how that strategy turned out.
In fact, the crypto woes are still continuing.
According to the media, cryptos fell lower on a South Korean exchange hack.
But it’s not just cryptos that people are buying or stealing to make a quick dime.
Gangs in Chile are also trying to steal as many avocados as they can. From Melbourne to Europe, Gen Ys just can’t get enough smashed avo with their lattes. Chinese interest has also led to an avocado shortage.
It’s why they’re calling it green gold in Chile.
Just another way people are trying to make a quick buck.
Forget bitcoin, steal some green gold
Like bitcoin, Chilean gangs are taking a speculative bet on avocados.
Along with increasing demand, supply may soon run out.
The Australian Financial Review picks up the story:
‘Avocados are the staple of every Chilean table for breakfast, lunch-time salads and afternoon snacks. Now soaring demand, the effects of a long-term drought in Chile and heavy rains in neighbouring Peru have pushed prices of the fruit to record highs. Trips to the gym or work can be spiced up with furtive deals on the informal avocado market, with people selling them from the back of their cars. A quick search on Yapo.cl, Chile’s Ebay, turns up more than a 100 sellers.
‘…The crime has reached such a level that Crescente Molina, who produced 100,000 kilograms of avocados last year in central Chile, has had to take drastic action.
‘“We already pulled out avocado trees in the areas most vulnerable to theft because this is no longer profitable”, even as prices soar, Molina said by phone. “We have replaced them with citrus trees, which are not as appetising to thieves.”’
Yet I expect it could turn out like cryptos in late 2017.
Prices will rise to never-before-seen levels. And instead of selling into rising demand, avocados will be, to a much lesser extent, like tulips in the 1630s.
Resellers will be waiting for the next sucker to come along as the price continues to creep upwards.
A lot of investors adopt the same mentality when it comes to stocks. They buy with the hope of selling out at a much higher price in months.
But they don’t think about the business behind the stock. They don’t consider the value of stock. They believe the good times will keep on rolling and someone else will come and bail them out.
To make sure you don’t make this mistake, I want to share with you an easy way to stay out of trouble…
But before I do, let’s have a listen to what Joel Greenblatt, investing genius, had to say in a recent Fox interview.
The little book
When asked about the current level of the market (S&P 500), Joel told Fox reporter:
‘Right now we’re [the S&P 500] percentile towards expensive over the last 27-years. What that means is the market has been cheaper 84% of the time and more expensive 16% of the time.
‘We can go back and look at this valuation level in the past, and what’s happened is that from this valuation level year forward returns have 3-5%, two year forward 8-10%.’
This is below the long-term average of 8–10% per year. And it’s because the market is expensive in a historical sense.
That doesn’t mean you can’t find cheap stocks. However, it does mean the universe of cheap stocks is limited.
Yet you’ll still see investors pile in because of how the stock chart looks or hoping for more growth to come.
Instead I’ll show you how to find those valuable stocks among the sea of expensive bets. In his wonderful book, The Little Book That Beats the Market, Joel says you only need two things to find wonderfully cheap stocks.
The first is earnings yield, which is enterprise value divided by earnings before interest and tax (EV/EBIT). This will tell you how much you’re paying for earnings. Think of it as a more sophisticated price-to-earnings ratio.
The next is return on invested capital (ROIC). This is the returns a business can make on each dollar of equity and debt invested.
For example, a beverage company might invest $10 million of debt and $40 million of equity to receive $20 million in earnings. That business is earning a 40% return, or 40 cents on every dollar invested.
In one of Joel’s funds, all he does is add these equations together. He ranks the market by cheapest and highest returning, and then invests in those.
It’s not rocket science, and it might not work out every year. But over time, it’s a great way to find amazing gems hidden in the market.
Editor, Money Morning