Investing is often thought to be an exercise in buy low/sell high. Those rules are actually more suitable for trading or flipping, which is different from investing. Investing is about growth in value. Either through active participation or by careful analysis and selection, you acquire assets with the expectation that they will be worth much more later, and even more later still.
What to buy, When to Buy
To that end, it is important that you choose the right investments. What you buy is far more important than when you buy. The right investment choice is even more important than cost basis (price paid). Of course ,you want to avoid overpaying for anything whenever possible, but if a good investment is good at $200, it’s still good at $300. If you like it at $200, but not so much at $300 then maybe you actually don’t like the investment that much at all. Seeking and exploiting pricing anomalies is for traders, flippers and arbitrageurs.
When I buy an asset, my thought is that I’m never going to sell it, so it has to continue to grow in value for the foreseeable forever. I buy with a mind towards my legacy; for my children and for my grandson and for the Family Foundation. The time to buy is, theoretically, now. Once you have done the research and you’ve decided that you definitely want to own it, buy it. In instances where negotiations are appropriate, negotiate for the best possible price at that time. Don’t wait though. If it’s as good as you think it is, the value and price are going to go up. Patience is a virtue when researching your thesis. You may want to wait to see if the artist whose work you want to acquire is committed to her craft. You will want to wait to see if the zoning in an area where you want to buy real estate will turn favorably. You should wait and assess whether or not the executives at a company you think you like are capable of executing in their stated strategy. What you don't want to do is wait for a “good price” on a great asset. Great assets increase in value over time. So, if it is what you think it is, waiting will cost you. When you’ve made up your mind to buy, it’s time to buy.
What to Sell, When to Sell
As an investor, you should never buy with the intent to sell at a given price target. The investor’s objective is to grow as much value as possible. Price targets limit growth potential. An amazing painting whose value goes from $20,000 to $150,000 will probably go higher still. Why miss out? The same applied to great companies. Don’t just buy stocks. Invest in great companies. They increase in value and then increase in value some more. In fact, always buy great stuff. You will greatly reduce your chances for buyers’ remorse.
Stock investing is unique in the sense that the stock market makes buying and selling fast and easy. Art. You can easily sell stock you shouldn’t have bought, and you can always buy back stock you shouldn’t have sold without much effort. Almost always though, it will cost you. So, you still have to be thoughtful and have a plan. Art, or a business, or a building are harder to buy and maybe impossible to sell. Selling under duress will guarantee you’ll be selling at a discount.
If you are selling assets to raise cash (for taxes or a more attractive investment), the next thing is to decide what to sell. Some of that will be personal. With art, it’s totally personal. The family business, that could be personal. With real estate, it is sometimes personal, but it shouldn’t be. With stock investing, it’s math. Taxes, valuations, future growth expectations, ice-cold math. Whatever the case, you’ll want to consult with capable professionals when making financial decisions, and family when it makes sense to do so.
None of this should be taken as specific advice as to what you should do. I’m not suggesting that you buy any of the kinds of assets mentioned here, or to sell anything you own already. There are a lot of ways to invest. You’ll make your own decisions, with the advice of your advisors based on what makes sense for you and your intended legacy. Everything works better when you have a plan. What to buy and when to sell are easier to assess in the context of the overall plan and the big-picture goals. There is no universal right and wrong. (That’s not true. Some stuff is just every kind of wrong.)
If you want to learn more about art collecting and other kinds of investing, check out some of the books featured with this blog. You can also connect with us at Family Financial Management Practice.
William Skeet Jiggetts