Are You Keeping Your Powder Dry?
The real wealth is made/captured when markets are weak, and other investors confidence is low.
The Oracle of Omaha Warren Buffett, who is regarded as one of the most successful investors of our time, is know for saying “Be fearful when others are greedy. Be greedy when others are fearful.”
How’s this relates to today and me and you and investing? Let me share about how I am laughed at sometimes for playing “small ball”. How do you make any money selling a $100k property Logan? I’m the kid on the playground who everyone is secretly whispering about and laughing because I’m playing small ball, thinking small, acting small.
Well here’s how.
Take a look at the listing history on this little $112k house (pic below). Itnsold on MLS for $22k in 2012 & for $112k in 2018 In what appears to be an untouched condition. This is not mine but it’s a classic example of many of my properties. If you know anything about the markets most recent cycle the associated dates and prices will clearly speak volumes to you.
I entered the real estate markets in 2010 - 2012, and went all in, as much as I personally could at the time. Cashing in 401k, draining all savings, every month my paycheck would go to another deal, even dumping my family members money in. I went all in. I kept a little cash pile for safety but was dumping it all into the bottomed out real estate market. All in. If I could go back I would have borrowed from everyone I knew, but this was my first stab at taking advantage of a depressed market, so I gave all that I possibly could at the time. Next time I’ll go all in and then some, but I’ve learned plenty since then. They say hind sight is twenty twenty.
Id like to think I’ve done good with this approach and am also going to be ready for the next opportunity like this. Some say cash sitting and not at work is a travesty, some say it’s smart planning and preparing. I know what my choice is; Be fearful when others are greedy. Be greedy when others are fearful.
One of my mentors father, an old banker always asks- Logan, are you keeping your powder dry? He is asking if I am staying prepared for the next opportunity.
What's the origin of the phrase 'Keep your powder dry'?
The allusion is to gunpowder which soldiers had to keep dry in order to be ready to fight when required. This means preserve your resources for a time when they are truly needed, what resources you ask? A soldier needs his gunpowder as an investor needs his cash. His ability to move on an opportunity, faster than all of the rest. Cash is his gunpowder, one of his most critical resources, it allows him to pull the trigger on a moments notice when he finds himself faced with the opportunities of a lifetime.
This gunpowder advice reputedly originated with Oliver Cromwell during his campaign in Ireland. In Ballads of Ireland, 1856, Edward Hayes wrote: “There is a well-authenticated anecdote of Cromwell. On a certain occasion, when his troops were about crossing a river to attack the enemy, he concluded an address, couched in the usual fanatic terms in use among them, with these words - 'put your trust in God; but mind to keep your powder dry'."
So as we watch the market shift, less disciplined investors being distracted by shinny objects, and reckless imprudent choices developing all around us, I ask one question: Are you keeping your powder dry?