Fool’s gold

I was working in the stock market in 2001 when the dot com bomb took place. Back then people were saying you just couldn’t lose in the stock market. Then the worm turned and it was ugly. A friend of mine had a client who was heavily invested in Level 3. He was a minor executive and a true believer. He had all of his money in Level 3 stock and had margined it to build a house. He rode Level 3 all the way into the ground, and then they let him go. The talk on the street was buy precious metals. Gold was $300 an ounce. I thought it was a questionable investment strategy. Could I have predicted that terrorist would destroy the very building I had worked in that May? Could I have predicted that our government would spend what it has spent (rather than what it has) to not catch the guys who did this? Could I have predicted we would invade Iraq and be stuck there for now four years, probably much longer? Could I have predicted the mortgage meltdown, the foreclosure problem or the credit crunch? No, I couldn’t predict any of that. No one could. So no one could have predicted that gold would be $1010.80 an ounce today. Will it keep going up? Not forever. It will cycle like everything else.

There were some warning signs that the statement “It’ll just keep going up” was not an absolute in the housing market. The housing market has adjusted seriously at the beginning of the last four decades. 1971, 1981, 1991 and 2001? Oops, we missed a year. We kept missing that adjustment for six years. It was not going to keep going up. Business is cyclical. Would real estate continue to be a sound investment? With good investment principles absolutely yes. Those principles include buying in a solid area with a good infrastructure. Buying with a solid down payment allowing for a reasonable cash flow after five to seven years. Buying with the intent of holding. Flipping, while exciting is just as dangerous as day trading. If you’re a thrillseeker and can afford to monitor the market like that…knock yourself out. The average investor doesn’t have that sort of time. So it’s important to find a home that’s right for your family. It doesn’t matter what the market is doing, if the house works for your family and the principles are in place, your investment will be sound. In 1991 a lot of people bought at the top of the market. The market plunged and many walked away. The ones who toughed it out, found that in 1998 they had made up all the money they lost in the early 1990’s and then some. So choose for your family and the rest will follow.