102: Avoid 5 Investing Mistakes that Can Destroy Your Financial Growth
It’s not fun making mistakes! In the wise words of Buffy, our financial bestie, Warren Buffett, “it’s good to learn from your mistakes – it’s better to learn from other people’s mistakes.”
These days with all the news about the stock market and housing market crash, you might be wondering if your current investing strategy is destroying your financial growth.
Well, maybe it is. And maybe it isn’t.
In the past, we’ve talked about how we believe that real estate is the best risk-adjusted asset class anyone can invest in. But of course, there’s always the right and the wrong way to invest, which can be the difference between you destroying your growth versus taking quantum leaps.
In today’s episode, we will go over the 5 mistakes that can destroy the financial security and growth that you worked so hard for.
Let’s get into it. 👇
“In a bull market, everyone looks like a genius and in a bear market, geniuses look like everyone else.” That’s a quote from CEO and self-made entrepreneur Vinny Lingham, who, fun fact, is also a shark on Shark Tank South Africa.
We definitely felt like we heard this a lot during the most recent stock market bull run in history, where we saw Tesla stock, for example, jump up 1000%. No wonder a lot of stock investor’s perspectives were a bit skewed. 😦😦
So let’s get to the first mistake that can destroy your financial growth, which is speculative investing. This is a big no no for the Kitti Sisters. One of the oldest historical examples of speculative investing or financial bubbles was the tulip mania of the 1630’s. 🤓🤓
So basically during the 1630’s, the Netherlands was actually the most prosperous and advanced nation in Europe. Tulips became popular in Europe after it was introduced from Turkey in 1550. The flower’s vivid color became all the rage and this caused the price to soar as demand outstripped the supply.
Who knew, right? Maybe you did, but we had no idea about all of this tulip mania. So after 1633, Holland’s tulip trade was deregulated and ordinary citizens were allowed to grow them. Ordinary middle-class and the poor mortgaged their homes, estates, and industries to fund their tulips. 👀
This was where all the trouble started.
The speculation got so severe that tulip bulbs were sold and resold multiple times before they ever even left the ground. Some bulbs were sold for the equivalent of several hundred dollars in today’s value.
This so-called tulip craze, as it is known in history, came to a bitter end in 1637, when debate arose over whether or not the market and the demand for tulips was sustainable, which, of course, it wasn’t. Cashflow Multipliers, people were literally mortgaging homes so that they could buy bulbs with higher resale value and to get the rarer, most sought after bulbs. Of course, all good things come to an end, which unfortunately caused financial ruin for many families.
This is why we are such firm believers that you have to invest in income-producing assets. When your investment doesn’t produce any cash flow, this means that the only way you can profit from this investment is based on future speculation. This is a big problem because its value is not supported by the asset’s true intrinsic value. 😘😘
For example, in our world of apartment investing, we always look for an apartment complex that produces positive cash flow from day one of operations, which truly speaks to the health and viability of the property.
Timing the Market
The second type of investing mistake that can destroy your financial growth is trying to time the market. This has become one of our pet peeves, because no one can perfectly time the market. This is an impossible, irrelevant, and a costly endeavor to pursue.
Here’s the thing, economists are excellent at piecing together patterns and data of historical events, but they are terrible at predicting the future. Don’t believe us? Here are some headlines about where we are financial as a nation. 👇👇
According to a recent Market Insider article from MSN, the stock market aside, the economy is actually doing fairly okay. Consumer spending is up, the job market is still strong, holiday spending is projected to be high this year, supply chain issues are dissolving, and analysts at Goldman Sachs state that private sector finances are at all-time high.
On the flip side of that, in another article from Yahoo Insider, the headline states, and we quote, “12 dire economic warnings” from top investors, CEOs. and academics. So who do you believe?
This is why we say the time 🕰 to buy is always now. This doesn’t mean we buy recklessly; this means we take current market conditions and relevant data specific to our prospective property into consideration.
We have very stringent investment criteria that a property needs to meet or exceed in order for us to purchase it.
Ultimately all these criteria filter through our financial model at which point we verify key data such as rent growth projections, economic vacancy, cap rate, average cash flow, overall returns, etc. By constantly calibrating for current market conditions, running stress tests or sensitivity tests, we are always able to adjust how we buy to meet current market conditions.
That’s why it’s always profitable to buy a property at any time as long as you can buy it at the right price but also know how to operate it successfully. 😉😉
Lack of Diversification
Number three on our list of investing mistakes that can destroy your growth is a lack of diversification.
One big mistake that an investor can make is putting all their eggs in one basket. For us, this means investing in one specific submarket. For example, if you’ve heavily invested in Dallas/ Fort Worth, it’s probably time you look to look at other markets. Market diversification reduces the market correlation risks.
For us, the Kitti Sisters we strategically diversify into the Sunbelt cities, such as Dallas/Fort Worth, Houston, Atlanta, Phoenix, and Rogers, Arkansas.
The Shine Object Syndrome
Number four on our list is SOS, that familiar shiny object syndrome. Listen, we ourselves can be found guilty of getting distracted by the shiny object syndrome where we jump from one investment asset class to another without fully having a firm foundation on the one we’ve already invested in.
The problem is that too often these distractions do nothing to help your overall financial growth. 🧐🧐
Instead, the exact opposite is true; if you invest in too many faltering ones it may crush your investment portfolio all together. Think of the stock market and cryptocurrency, those represent two extremely shiny object asset classes in the last few years. We know, the allure of becoming a multimillionaire or even billionaire in some cases with these altcoins can be very swaying.
But today, sadly 😔😔 , we can see what has become of those investments into these asset classes, especially from those who do not truly understand their fundamental risk profile.
Lack of Investment Knowledge
Finally, and fifth on our list is a lack of investment knowledge.
Scientia potentia est is a Latin phrase meaning knowledge is power, which is attributed to Sir Francis Bacon, an 15th-century English philosopher.
Many times we see investors jump into investment opportunities without understanding the risk and reward considerations.
As general partners, we always want to take a balanced approach to any investment. We can not only consider the positives that can happen but also consider any potential downside risk of owning the asset. With all downside risks considered, we further try to develop mitigation tactics. ✨
For example, if we are newer to the area, we will lean more heavily on the experience and expertise of the property management team who have an established local presence in our submarket. Or if we think short-term debt may become an issue, we’ll seek to secure longer-term fixed debt that will provide long-term stability to the property for many years to come.
The point is that knowledge is power, which is why we are always seeking to educate ourselves even more, and we want to share our knowledge with you, our amazing Cashflow Multipliers!
You make this all possible. Until next time, Cashflow Multipliers! 🙏💪
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