No More $1,500 Lunches
Monday, January 19th, 2009
By Michael Lombardi, MBA for Profit Confidential
Jeff, a developer and homebuilder, has been a good friend of mine for years. If you know anything about the real estate crowd, you know they spend as much as they make (and often more) when times are good, because they easily forget the bad times.
When the times were good, lunch for four people with Jeff would easily run $1,500. And he was more than happy to pay, as he was always the one extending the invitation. But Jeff doesn’t go out much these days. The $1,500 lunches are just a memory, as Jeff eats at his desk most days. When he calls and wants to see me, we meet at a Starbucks. Jeff’s biggest problem: his houses sit empty, unsold. So cash has become tight.
But this is not Jeff’s first brush with bankruptcy. He almost went “under” in the early 1990s, when the economy was soft and real estate prices fell after a boom that took place in the late 1980s. Little by little, with hard work, by 2005 Jeff built the business back up to a healthy 250 to 300 houses sold per year in five to seven subdivisions. This year, he’ll be very lucky to sell 25 to 50 homes.
Why am I sharing this story with my PROFIT CONFIDENTIAL readers? My friend Jeff sees a bleak economic future ahead. So do most business people and investors these days. We have an
incoming President expecting two to three million job losses in the U.S. this year (on top of the 2.6 million jobs lost in 2008). We are told to expect a 10% unemployment rate. And we are told by the media that, by the time this is all over, at least one of our family members or close friends will lose their job.
If the media is telling us the future is so bleak, hasn’t the stock market already discounted all the coming bad news in the prices of shares? After all, the stock market is a leading indicator of things to happen.
This brings me back to Jeff. If he was a smart businessman, wouldn’t he be wise to pick up building lots from his competitors (who are going broke) at fire-sale prices? That’s what I would do if I were Jeff…but he cannot make the move because he has too much fear.
Fear has replaced greed in businesspeople and in the stock market. There are good quality stocks out there selling at prices we haven’t seen in years…but investors are not buying them. Could the stock market go down another 20%? Sure it could. But what if it doesn’t? Well, if it doesn’t, we will look back at 2009 and say, “It was a great year to buy stock, because they were so cheap. But who knew?”
Investment fortunes are made by buying low and selling high. Today, the Dow Jones Industrial Average trades at about the same price it did in 1998. My message is simple: don’t let fear sway common-sense investing. Catching the exact market bottom or high is next to impossible. If you have $10,000 (to pick a number) and recognize how cheap stocks are today, and you can put your fear aside, taking 25% of your cash and putting that money into quality stocks is a wise investment move. Now, if only Jeff could overcome his fear and start buying low again, he would lay the foundation of a stronger business in the years ahead.
Next Post: Bailing Out Your NeighborPrevious Post: What Lies Ahead for the U.S. Dollar and Gold
Tweet
Sign Up for PROFIT CONFIDENTIAL and
receive a FREE copy of our exclusive report:
"A GOLDEN OPPORTUNITY FOR STOCK MARKET INVESTORS"
We respect your privacy and
will never share your e-mail address.
Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
