Charlie Munger, Warren Buffett’s business partner, is fond of saying, “I want to figure out where I’m going to die, so I won’t ever go there.”
They say hindsight is 20/20, but it doesn’t really help with the here and now and what the future will hold. The only thing we can do is use the past as a resource when trying to make decisions for our future. It’s hard not to beat ourselves up for passing up opportunities that could have been huge game-changers in our lives. Some of the things that come to mind include buying boatloads of bitcoin at $10, acquiring shares of Apple in 2001, and buying more real estate.
One of the things I beat myself up about is not buying more California real estate between the years of 2009-2012. I only purchased one property during that time period in California, and the rest of my savings was going to other prudent investments, which I don’t regret, but haven’t all been as substantial as my investment in California real estate.
I try not to think about this too much, because I get mad at myself for not doing this a few more times. But again, hindsight is 20/20, and who knew prices would have risen as much as they did? The home I purchased has gone up around 70% since the time I bought it. I purchased the home with a 20% down payment, which makes the return on the actual skin I had in the game around 350%.
I would have loved to make 350% on all my money over the last few years, but that sort of expectation is unrealistic. But when you taste the victory, you try and do it again, and again, and again.
I would have loved to have done this about 10 more times, but I didn’t, and it seems all so clear to me now. The reality is, though, the returns that were seen in real estate over the past two years are not typical and could have very well gone in the opposite way. It could have led to potential losses that exceeded 100%, if I did happen to use debt to finance my homes. Just so you see how this is possible, let’s say you put $40,000 down to finance a $200,000 home and the home drops $50,000 in value. Not only do you have an unrealized loss of $50,000, but you would now owe money if you sold it for its current value of $150,000. That is the higher risk that comes along with buying investments with debt.
In the end, I am happy I made money, and was diligent enough to act without betting the farm and losing everything. Since then, I purchased cash flow, great long-term stocks, some speculative stocks, and precious metals.
Something that I think many investors suffer with is this hindsight mentality. One area this comes up a lot in is not buying at the absolute bottom and not selling at the absolute top. I’ve had to learn to let that go, because it’s impossible to know the absolute high and the absolute low of any investment. The only thing you can do is look for value. When something is significantly cheap, buy it; when something is expensive, sell it and try not to look back.
Consistency is the key to making money, not being lucky just once. A friend and I were talking about BP, an oil stock that we currently like, and I had shared with him that I purchased shares at $37.50. He started legitimately boasting that he purchased shares 5% lower than where I bought my shares. He doesn’t do much investing, and it was partial luck that he bought around $36. I congratulated him for pulling the trigger when he knew there was value. This happened within the last 30 days, while oil stocks were bottoming out and everything was falling fast, and I pulled the trigger at $37.50, knowing full and well that shares could fall further. Prices did fall a little more, and my friend did happen to catch BP close to its most recent bottom. The fact is it isn’t always going to happen that way, and you have to have the courage to buy when you know there is value, and accept the fact that you aren’t going to always catch the bottom and sell at the top every single time.
One of my favorite things to do is to put stocks that I want to own on my watch list and wait for them to fall before I accumulate shares at discounted prices. Over time, this has proven to really accelerate my returns in my investments, and I encourage you all to do the same. Already, BP is up 12% from where I bought it, and is paying out a substantial yearly dividend that will be collected quarterly. Sure, I could be mad that I didn’t buy more at slightly lower prices, but in the end, I bought when there was value and I’m making money.
Any time something works out in my favor, I always wish I put more into that idea. But I’ve learned that trying to live in the past is a sure way to quench my future. Hindsight doesn’t help you see the future, but learning from the past can help develop positive habits that will grow your wealth steadily overtime.
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Chief Editor at CrushTheStreet.com