There is no single investment opportunity or asset class that can promise consistently high returns all the time. Many argue that real estate has always outperformed and is a good hedge against inflation. But done at the wrong time and real estate investing doesn’t work.
According to the Federal Reserve Bank of San Francisco report, The Total Risk Premium Puzzle, the annual total return of UK Real Estate averaged at 7.63% for the period from 1963 – 2015 whereas, the annual total return of UK Stocks and Shares for the same period of 8.74%.
Price and Time
There is no good or bad investment but good or bad price and time of investment.
Selecting good companies does not guarantee superior returns. See – Cable and Wireless, Xerox, British Steel, Thomas Cook, and Blockbuster. Great investment decisions are based on two things – Price paid for the stock and the time of purchase. No company is so good that it cannot be overvalued or so bad that it cannot be undervalued.
What is most important in investing? It is not knowledge or strategy, but it is the discipline.
The riskiest thing to do is to buy something when everyone else is buying. All the information has already been factored in the price. You want to participate in an auction where there are only 2-3 bidders rather than hundreds. You want to buy something when it is not discovered. The most profitable thing to do is to buy something when no one is keen on buying it.
Your best bet is to be a contrarian investor.
There is no undervalued stock that is known by everyone. If everyone knew it, then why the price has not gone up? The bottom line is to buy when no one else will.
If everyone likes it, sell; if no one likes it, buy.
As Warren Buffet said, “the less prudence with which others conduct their affairs, the greater prudence with which we should conduct our own affairs.” When others are afraid, you needn’t be, when others are unafraid, you better be.
After Lehman’s collapse in 2008 in the great financial crash, everyone was afraid of financial stocks. The market rewarded contrarian investors who waited patiently and bought financial companies in 2009. Contrarian investors find opportunities that offer the right balance of return and risk.