World’s Greatest Investment Mistake: Real Estate over Gold and Silver - Bullion Bulls Canada
Buy low; sell high.
This is not merely a maxim for the world of investment. As a matter of arithmetic, it is the only, possible way to make a profit, in any market, over the long term. Yet what do we see, in the (supposedly) sophisticated world of the Western investor? We see real estate prices at insane (bubble) highs, yet Western “investors” continue to funnel insane quantities of their financial resources into the most over-priced real estate, in history.
At the opposite extreme; precious metals prices are currently at an extreme/insane low, generally below the cost of production, for gold in particular. This guarantees declines in future production, even as these markets already have widening supply deficits. Yet the Western investor flocks into real estate, but shuns precious metals.
Buy high; sell higher(?).
This is not merely the maxim of idiots, as a matter of arithmetic, it mathematically guarantees that one will lose money in markets, over the long term. It is financial suicide. Yet this is the pattern we see with nearly all (supposed) “investment” today: buy stocks (which are at bubble-highs), buy bonds (which are at even more-absurd bubble-highs), buy real estate (also at bubble-highs) – and hope to be able to sell these bubble-investments at even higher (i.e. more ridiculous) prices.
How do we explain the lemming-like behavior of the Western investor? In one word: conditioning (or “brainwashing”, for those who prefer more direct speech). We have been conditioned, for decades, into becoming momentum-chasing Lemmings, while (equally) we are conditioned away from any activity which remotely resembles the concept of “investing”
‘Buy and hold is dead.’
You could hear that phrase come out of the lips of a million-and-one charlatan financial analysts, following the Crash of ’08. Why? Because all of these “experts” (and their clients) had been badly burned, and completely “surprised” – by that utterly predictable event.
What was the solution of (most of) the “investment community” to their mass, systemic failure in 2008? Did they try to (honestly) ascertain how so many of them could have been so very, very wrong? Of course not. They simply threw up their hands, en masse, and publicly/officially proclaimed that they were ceasing even attempting to “invest” in markets.
Buy-and-hold is dead.
Buy-and-hold is “investing”. The definition of the verb “to invest” is to place one’s wealth into a particular asset class, and then give that asset (i.e. investment) time to mature. If one buys-but-doesn’t-hold, then (by definition) that person is no longer “investing” at all – merely gambling.
Thus we see that the individuals (Lemmings) referred to as “Western investors” are, in fact, merely all serial gamblers. Why is serial-gambling considered to be (and treated as) a “disease”? Because serial gamblers almost always end up in financial ruin.
In the case of Western gamblers, who have been deluded into believing that their gambling is actually “investing”, this path-to-ruin can be very easily described and defined. They are attempting to buy-high and sell-higher. But what always happens to such market gamblers, over the long term is that “buy high; sell higher” inevitably turns into “buy high; sell low” – after the bubble(s) bursts.
How do we know the supposed “investors” in Western markets are now pure gamblers? It is easily proven just by looking at how the markets are presented. Almost always, they are presented via charts. And (almost exclusively) the “investments” being touted by charlatan pseudo-experts are charts with a strong, upward slope.
Look how high the price has already gone. Look how much higher we expect the price to go.
Only gamblers think in this manner, and look at the world in this manner. Here readers need to understand that “price” is not a fundamental of any market. In legitimate markets (and only legitimate markets); price can be used as a proxy (for some fundamentals), and thus price-analysis can have some degree of validity. But those readers who believe we have “legitimate markets” would probably be more interested in reading fairy-tales about the Easter Bunny than in continuing to read this analysis.
In non-legitimate markets; price-analysis has zero validity. Period. All of this silly chart-watching and chart-predicting has no analytical validity, whatsoever. It is nothing more than bait for gamblers.
How do real investors behave? Real investors spend their “due diligence” time not with meaningless price-analysis (and momentum-chasing charts), but rather by looking at something called “fundamentals”. Supply. Demand. And other words rarely heard in the momentum-chasing world of the charlatan gamblers.
Why do real investors ‘waste’ their time in such activity, rather than price-watching so that they can hear which “hot investment” is going to go even higher? Real investors look at fundamentals because they are not looking for the most-expensive asset classes in which to place their wealth. Rather, they are looking for the “cheapest” asset classes.
Buy low; sell high. To make money, over the long term (and engage in real “investing”); one must always start by “buying low”. Let us now return to a comparison of precious metals versus real estate.
Real estate prices are not merely high. They are not merely “too high”. They are very obviously bubble high. There is perhaps no asset-bubble which is easier to see than a real estate bubble. The reason for this is very simple. There is, always has been, and always will be a strong correlation (over the long term) between real estate prices and income levels.
Put more precisely, and put into even more-basic terms; over the long term real estate prices must match income levels. How do we finance the purchase of our homes? Via our incomes. Thus obviously if house prices soar high above income-levels then those house prices must (at some point) come tumbling down, because the financing of that real estate bubble cannot be sustained.
According to nearly all of the “experts”; the crash of the U.S. housing market was a “surprise”. Really? What “experts” were incapable of understanding the significance of the chart above? Apparently nearly all of them.
Here is a glimpse (above) of the housing bubble in the market in which this writer is domiciled, back in 2009. The “bubble” in Vancouver’s real estate market six years ago could not be more obvious. What has happened since then? The bubble-prices have soared roughly 40% higher, while incomes remain (roughly) flat.
Obviously no one who has purchased a residence in the Greater Vancouver area since 2009 can even pretend to be “investing”. This is pure gambling. Buying (ridiculously) high; hoping to sell even (more-ridiculously) higher. Momentum-chasing insanity. And we could construct similar charts around much/most of the Western world. Cultural insanity.
Then we have precious metals. There isn’t enough space in the remainder of this commentary to even begin to adequately summarize the full, fundamental virtues of this asset class. But such a level of detail is unnecessary in this analysis, where gold and silver are being stacked-up against obvious, absurd bubbles.
There are a dozen different means of demonstrating, in fundamental terms, how/why gold and silver are objectively cheap, as asset classes, but we only need one. One such previous analysis showed that gold is now clearly priced below the average cost of production, in a sector with a large, ongoing supply deficit. As a matter of “fundamentals” (economics, logic, and arithmetic); the only, possible direction for the price of gold to go over the long term is up. That is investing.
We look at the silver market, and we see based on the historic metric of the “average wage” that a fair-market price for silver, today, would be $1,000/oz. Yet we see silver priced at roughly $15/oz (USD). We look at the difference between $1,000 and $15, and we see opportunity. That is investing.
It is impossible to look at any real estate market in the Western world and engage in similar, fundamentals-based analysis. By any possible (rational) metric, Western real estate is priced at utterly insane levels. As noted in a previous series on this subject; these bubbles have been deliberately created (by the banking crime syndicate) as a prelude to most massive “crash” (and foreclosure “operation”) even seen in the Western world – or anywhere.
Buy low; sell high.
Western real estate is obviously priced sky-high. The Rational Investor would (only) be a seller of real estate today. Precious metals, meanwhile, are priced at a rock-bottom low. The Rational Investor would (only) be a buyer of gold and silver.
What does one say to those who (smugly) proclaim “look how much money I’ve made already in real estate”? We have a joke which deals with people like this.
A man jumps off the roof of a 100-storey building. As he plummets past an open window on the 50th floor, someone sitting near the window hears him say “so far, so good…”
Back when people made rational decisions in the marketplace concerning their financial management; why did people consciously choose to “invest” rather than “gamble”? Two reasons.
We invest rather than gamble, because (over the long term) our probability of success is much greater (“buy and hold”). We also invest rather than gamble, because “investing” makes it much easier to sleep soundly at night.
This should be no surprise to the “investor” of today. Those putting their wealth into ultra-expensive real estate, hoping that the bubble-prices will go higher (before they crash) are either not sleeping well, or simply living in a Fool’s Paradise. Those putting their wealth into gold and silver; knowing these assets will “appreciate” (in relative terms) over time are undoubtedly sleeping much more soundly.