Two-hundred and thirty-five years ago the founding fathers of our country signed the document that declared their intention to break away from the rule of the British monarchy. The colonists wanted to be able to govern themselves and make decisions for their own welfare rather than be subject to the desires of others. In short, they didn’t want to be told what to do or how to think.
While it may be quite a stretch to compare the two, real estate investors need to declare their independence as well. Something that separates successful investors from those less adept is the ability to cut through the clutter and think for themselves. It’s not as easy as it sounds. Every day we are bombarded by reports, statistics, and predictions from a multitude of so-called experts. The theory of these prognosticators seems to be “predict often and sooner or later you’ll be right.” The truth is that most of them are simply making a guess based on their own particular point of view.
Watch the Agenda
A successful and now retired investor I know would always ask a simple question whenever someone made a statement or prediction – what’s their angle? He wasn’t suggesting that they had some hidden agenda or nefarious motive; he simply wanted to understand their perspective. It’s something inherent in all of us, even those with the purest of intentions, our opinions are influenced by our worldview.
An economist interprets data to fit his theory, a politician spins the facts to fit his party’s agenda, a salesperson touts the benefits of his product while glossing over the flaws. Sure, some people will outright lie, but even honest people will view things through the prism of their own beliefs. To achieve better success as an investor you need to find the truth behind the façade. Investors, and people in general, are fooled constantly. Unfortunately the person who deceives them most often is looking back at them in the mirror. When faced with a set of “facts” do you really believe them to be correct or do you just want them to be true?
Be an Independent Thinker
Every investment bubble has one thing in common – amateurs who jumped on the bandwagon just before everything came crashing down. Whether you were talking about real estate, gold, stocks, or tulips, the end came when so many neophytes tried to cash in that there was no one left to keep boom from going bust. These latecomers saw everyone else cashing in and listened to the “experts” explaining how “it was different this time.” They ignored basic economic laws of supply and demand and paid the price. That doesn’t just happen at market peaks, it happens at the bottom too. Investments tend to turn around while the majority is waiting for things to go lower.
So what should you do? Take every piece of advice with a grain of salt and be wary of those claiming to be experts. Think critically and ask one simple question – why is this so and could the opposite be true? That’s not to say that you should subject yourself to paralysis by analysis, just try to examine things from different angles before deciding on a course of action. Quite often the most successful investors are the ones that choose to do their own thinking and not follow the herd.
The moment a person forms a theory, his imagination sees in every object only the traits which favor that theory. – Thomas Jefferson