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What I Learned From The Stock Market - (Thoughts Of A Real Estate Newbie)
| | Friday, December 26, 2003 @ 08:00 AM EST
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Contributed by: kherman
kherman Properties
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Well, I just started to seriously look into rental properties(yesterday) after doing the stock market thing for 3 years and I thought I'd share some lessons that could be used in both arenas. I've alread sold half my stock for the move to real esate.
I started trading post tech-crash, so there was less risk at the time.
(1)Know what the underlying issue is worth:
I was doing swing trading for a while. Swing Trading is a form of day trading, but you hold the underlying issue for up to 2 weeks. The concept was simple, but with all investments, know what you are buying and it's worth. I learned my lesson the
hard way and because I was getting strong headed. Over time, I didn't do my due diligence as I should have been as I did when I started. After about 3 months and 10 trades, I was up 30% (ignoring taxes.) That's about 100% annuallized. Well, I started getting lazy and stopped doing my due diligence as detailed as I once did. Then came dooms day. One of the stocks on my radar screen dropped from $40 to about $35. I bought in immediately. Then I watched it go down to $20 over the next several months. I didn't do my due diligence as I should have. Luckily, I didn't speculate over the long term or short term and only did swing trading with high quality issues and I knew that eventually a rebound would occur as it was a good stock. Well, about a year after the purchase I was back to $40/share (and I currently plan on selling this issue at about $40) and my investment strategy failed miserably. Anyways, I didn't do my homework, I just figured it was a good deal. Big mistake. Lesson learned: ALWAYS do your due diligence and never assume something is fairly valued or under valued whether it's a stock or a piece of real estate. I hope to never forget this lesson and hope others learn from my past mistake before getting burned. Clearly, it would be a bad thing if you were to purhcase a $350,000 property and then learned it's worth $250,000 because you didn't think about the fact that it needed new siding and a new roof (for example).
(2)Learn to sit on your hands:
This one is simpler. Cash on hand is a dangerous thing. Sometimes it's hard to sit on cash that's not making you money. You might miss a great buying opportunity after all. Or a bad opportunity. In the stock market, there's always tomorrow and thousands of stocks to pick from. With real estate, there will always be tommorrow and another property. If you think see a "good deal" out there but are not totally convinced it's a good deal, don't buy the property just because you can. Buy the property because you are 99.9% sure it's a fair deal or better. Even if you miss an opportunity, there will be others. There is always tommorrow. There are new "great" opportunities every day. Never be afraid to sit on your hands.
(3)Emotions
This is something that I knew I should do from the start of investing in the stock market but it takes time to discipline yourself. If your heart rate goes up when a potential purchase is in the air or you start shaking, recognize that you are getting emotional. Take a step back and a deep breath to clear your head. Even walk away from a conversation with the seller if need be. Just excuse youself and collect yourself. One of the most important rules I have in investing is the following: "Never get emotional about money".
Hopefully all this will help out future newbies and even act as a reminder to seasoned real estate investors.
Karl
Word Cloud:
doing back over have will think always yourself. real getting good what start this swing knew even about when never stock it's well, market after day. thing just underlying started lesson because cash would estate (thoughts something newbie) learned there should purchase buying hard term property with that's stocks trading hope then miss valued didn't investing issue diligence
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