J. Paul Getty once said, “If you want to make big money do what no one else is willing to do, sell when everyone is buying and buy when everyone is selling.”
This platitude is especially difficult to implement. Typically, when investors are buying in mass, whatever they are buying, the circumstances surrounding it are extremely positive and price is moving up rapidly. On the other hand, when everyone is selling, whatever they are selling, the circumstances surrounding it are negative and price is falling dramatically.
For instance, during the 1980s many institutional and private investors were buying commercial real estate at what was later determined to be seriously inflated prices. The Japanese even took part through massive acquisitions of U.S. buildings (i.e. the Rockefeller Center). Many U.S. investors took part through the purchase of limited partnerships which bought hotels, commercial buildings, etc. While these private and institutional investors were on their buying binge from approximately 1986 through 1988, others were on the sell side of the transactions, providing the real estate to the buyers.
In another example, after the 1987 stock market crash, many investors who had overstayed the bull market were sellers from November 1987 through mid-1988. As the market slowly moved forward during the early 1990s, there was a fair amount of skepticism around. In traditional fashion, many investors shied away from the stock market until about mid 1997 when the bull market picked up steam and prices began to go wild. The bullishness was rampant, confidence was high and investors were plunging in head first. The last thought for most stock market investors at this time was selling as the market made its Dotcom Bubble highs.
Conversely, by 1999 gold and precious metal mining companies were hitting new lows. Gold and silver had been in a bear market since the early 1980s. Governments across the world were selling large portions of their gold holdings and investors were selling their mining stocks as shares of these companies were hitting new lows. However, as in all selling sprees, someone was the other side buying. This was a major buying opportunity.
The old adage, “for every seller there exists a buyer” and vise versa is as universal as it has been for centuries. It is impossible to buy low if you never buy when prices are low and you can’t sell high if you never sell when prices are high. That usually means you are buying when the news is bad, your neighbors are selling and prices are falling. It also means that you are selling when the news is good, your neighbors are buying and prices are rising. These are very hard things to do, even for pros.
Quote of the week: “I would rather sit on a pumpkin and have it all to myself than be crowned on a velvet cushion.” — Thoreau
Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.