When’s the best time to invest in something?
It’s a pretty important question. But you probably won’t like the best answer. In fact, you’ll probably hate it!
Imagine you’re in this situation…
Would you invest when no one thinks you should?
It’s 1990. Argentina’s economy is on the skids. Years of hyperinflation has seen its currency become almost worthless, and foreign capital has long fled the scene.
The politics is unstable. Extreme policies on both the left and right dominate the public discourse.
Society seems fractured beyond repair…
In this heady mix, I come up to you and say ‘now’s the perfect time to invest’.
How would you answer?
A resounding yes? I doubt it…
I’d find it hard to imagine many people would say yes in such a scenario. I know I wouldn’t. And if I did, every fibre of my being would be saying not to!
But this is exactly what happened when an Argentinian fund manager, Eduardo Elsztain, managed to bag a meeting with legendary investor George Soros in 1990.
He left the meeting with a $10 million cheque after convincing Soros that the only way was up for the flailing Argentinian economy.
When the economy did indeed recover, he — and Soros — made a mint.
You can see the growth in GDP per capita — the average income per person — over this time below.
Source: The World Bank
There was another scary fall later in 2000, but the recovery after was even steeper.
Again, the question becomes: would you invest when no one thinks you should?
History suggests times like that are actually the perfect time to invest.
In a 2011 interview, Eduardo Elsztain said that ‘the best transactions are done when everybody stops and is paralyzed.’ He buys ‘real assets’ like farmland, real estate and gold when markets are frozen with fear.
Which begs the question…
What’s most feared right now?
Invest in today’s most hated
There’s no shortage of fear out there at the moment.
But I wouldn’t say we’re at the stage where many assets are absolutely hated yet. And that’s the stage where you can really pick up an absolute steal.
I mean, despite the negativity at the moment, I’m sure a lot of Aussie investors still love property. Despite the market gyrations, I’m sure a lot of stock pundits still think shares are a sure thing long-term.
To become hated, you need more than a few months of volatility. You need the kind of long, steep falls where everyone loses faith. Where the Sunday night quarterbacks come out to say ‘I told you so’ (after the fact of course) and rub salt in the financial wound.
Hate comes at the point when people think you’re positively crazy if you mention your ‘hot’ investing idea in passing at a family BBQ.
Moments like that are obviously fairly rare, but there’s a few assets that perhaps fit the bill right now…
Silver is one metal that’s been in the doldrums for a while. It’s still almost at decade-long lows.
Market Watch says:
‘Various sentiment gauges show that investors hate silver right now. In fact, the masses are so bearish that commercial hedgers are net long silver futures for the first time in 32 years.’
These commercial hedgers have a knack of picking market bottoms when no one else wants to buy. As you can see below:
Source: Market Watch
Then there’s cryptocurrencies…
Doom and gloom economist Nouriel Roubini certainly hates it:
‘It is time to see the light and give up on the useless Bitcoin and other Shitcoins.’
But with crypto markets falling by 80%-plus over the last year, this kind of talk resonates with people and stops them even considering an investment in crypto.
An opportunity for you perhaps?
Or how about investing in the UK stock market.
Stunningly the FTSE100, the UK’s main stock index, has lost all of the gains it made in the 21st Century!
The FTSE 100 on Wednesday closed below a level last seen at the end of 1999, mainly on concerns over Brexit and the world economy at large.
As Elsztain says, when investors are ‘paralysed’ with fear, that’s the time to make your move.
Or as the more well-known Warren Buffett puts it:
‘Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.’
You can replace the word ‘stocks’ with any asset there.
This contrarian way of investing sounds easy to do in theory. But don’t underestimate how hard it is to do in practice.
Hated assets can stay hated for a long time, which means you can end up sitting on steep losses if you buy in too early.
But if you want to wait to feel comfortable again before you take the plunge, you’ll likely have waited too long.
Therein lies the eternal investor conundrum!
Editor, Exponential Stock Investor
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