History Doesn’t Repeat Itself but it Does Frequently Rhyme
To say we are in or entering a time of uncertainty is an understatement of massive proportions. However, you can either let the uncertainty cause paralysis or you can take action by reviewing historical times of great upheaval and apply the lessons learned.
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While I believe in staying current on all of the hot topics, I find it a lot more valuable to review history to see how things worked out in the past. Most importantly, I try to figure out what strategy made the most money (and lost the most money) to see if I can exploit it again in the current market.
I utilize the following three prong approach to review historical facts:
First – I want to talk to anyone and everyone that lived through and profited from it. For example I have talked to dozens of older investors that profited from the 80’s crash in real estate. I have talked to them about what worked, what didn’t and what they wished they’d done differently — this last question being the most important for me to understand. In addition, I talk to these investors about what happened when Interest Rates went to 15%+ and how they survived and prospered.
Second – I read any and all books written about periods of time like the Great Depression, the Civil War, the rise and fall of Japan, etc. I strongly believe if we pay attention to the past and stop being so arrogant and thinking “This time it’s different,” that we can prosper by learning and applying historical events. While I agree that the scale and scope of our issues are bigger, I disagree that we have never seen anything like it before. We can all learn from the past.
The final area I dive into is any biography of a successful investor or business owner regardless of time frame. I figure if you can learn how they started, the challenges they faced and how they succeeded, you will be better off. The interesting fact about a lot of the biographies I have read of late, is that many great investors and businessmen started their business during the Great Depression.
To close, I must ask the reader some questions that are top of mind today:
- Are you afraid of interest rates exploding higher? If so, do you know what happened to the real estate market when the Fed raised interest rates significantly in the 80’s?
- Do you know what impact huge and very liquid hedge funds can have on the market when they are chasing returns as low as the 7% range? If so, do you know who prospered during the RTC days of the Savings & Loan crisis? (Hint: big money guys)
- Do you know what happens to real estate prices when inflation and interest rates rise? There are many online sources that will actually surprise you with the answer as it is counter intuitive.
- Do you know what happens when real estate goes from being a “leper” to the “holy grail” of investing? People chase trends and they hate to feel left behind so a few positive years will be followed by more positive years.
In the end, I believe an investor needs to learn as much as they can about the past to prosper in the future. Also – please stop saying “This Time it’s Different” because it isn’t!
Photo: Tony Fischer