What seems like just a few years ago, the dot.com craze was everywhere. If you had an idea you developed a website and went public within “minutes”. Investors were lining up to give you money. It was the “new frontier” a paradigm was taking place. The world would never be the same. Tech stocks would always be money makers.
Then reality set it, the bubble burst. It turns out there was no real value. Many investors were caught with most or all of their money in one narrow asset class, growth tech stocks. These investors lost billions.
Next came the real estate craze. It was common knowledge that you could not lose money in real estate. Credit was free or nearly free and people were ‘flipping’ houses. Banks were promoting interest only loans, ie, the loan payments were low because you were not repaying the principal. You could buy a house with very little capital, usually more house than you could afford and sell it six months later for a large profit. This was followed by buying a bigger house and so on and so on.
This bubble also came to a crashing close. The greed of people, the banks, Wall Street and all those involved nearly collapsed the world financially.
This is another example of how leverage can destroy.
Unfortunately the Wall Street bullies know these bubbles will happen again. The bullies can count on consumer greed to develop a new bubble. It seems investors never learn, we jump from one great money maker to another.
Please keep in mind no one investment type or class goes up forever. It seems obvious, but when an asset class has done well for several years, it creates the illusion that it will go on forever. No tree grows to heaven.
It is obvious that we are looking for the next ‘get rich quick’ scheme at every turn. Remember the bubble can burst on these schemes at any time.
While seeking out these opportunities is ok for your speculating money. It is not ok to invest your long term investment dollars.
You can fight the Wall Street bullies by developing a Main Street solution.
To succeed in reaching your long term investment goals you should follow three simple investing rules.
Own Equities……globally diversify…..rebalance.
This strategy while simple is very difficult to accomplish alone, because we lack one last key component, Discipline.
Without discipline all strategies will eventually fail.