Investing in Perceived Danger

Investing in today’s current market environment requires a “true investor” mindset. Contrary to human nature, investors must run into perceived danger and avoid perceived safety. Unfortunately for individuals, placing their hard earned savings in investment accounts presents a conundrum where perceived danger creates opportunity and perceived safety is fraught with danger.

A true investor is not concerned with making money, income, or produced gains today. They already have a source of income to maintain their lifestyle which is separate from their investment portfolio. Therefore, they can afford the opportunity to look at the world, sit back and say “Oil is cheap, I will buy some”, or “the Art market is depressed, I will buy some”, “The banks are depressed because of a global recession, I will buy some”, “Gold has collapsed, I will buy some”. In other words, they don’t force investments and hope markets will produce for them. They purchase inexpensive assets which have value and take advantage of the market.

To highlight the complexity individuals face today, assume you need interest income for your retirement. You search out investments with consistent interest income, historically considered safe investments. The difficulty comes from the risk associated with these investments today. The fact that interest rates are low and the Federal Reserve is increasing them causes these investments to be risky. As the Federal Reserve increases rates, interest-bearing investments go down in value. The only reason the Federal Reserve increases rates is that of a strong economy, hence the complexity of requiring something safe which performs poorly as the economy improves.

A true investor lets the market dictate where they should invest. Sell-offs in the market only predict a recession 53% of the time. That means purchasing cheap assets when the market is down 15% creates a risk similar to a coin toss that a recession might happen. This is a low chance; the true investors purchase these cheap assets because they are collecting earnings on their investments. These earnings may not be interest payments large enough to support your mortgage payment today, but they are substantially good enough to offset any chance of the market moving lower. The true investor purchases these cheap assets and waits to reap their rewards when the market figures out that the world will continue progressing forward.

Use the mindset of a true Investor and invest in the “perceived danger” of a recession. Although this is contrary to human nature, it creates an opportunity to invest. Act like a true investor and buy cheap assets when available and invest where the market allows you. When are the best investments available? When everybody else is running away from the perceived risks. If you still are unsure, just remember to buy low and sell high. If you would like to discuss this article and your particular situation, feel free to call me at (772) 223-9686 or email Michael@FogelCapital.com.