Well, my friends, have you ever heard the old saying insanity is continuing to do the same thing and expecting to get different results?
Have you thought about that lately? When I did the piece on financial independence on Fourth of July and—you know, I went out there and spent some wonderful days. I mean, it’s just been beautiful here in Houston, Texas. Hot and sunny, and I just love it.
Laying out in my swimming pool, it just got refinished and the house just got redone—and I was just thinking to myself I’ve been doing this same thing for 20 years. This is coming up on Lifestyle’s 20-year anniversary.
The Same Result
And in addition to that I have been actually investing for 25 years myself, and I’ve never lost money in real estate. Isn’t that a strange thing? I continue to do the same thing, and I continue to get the same result. Now, when I want to make more money I learned that I had to do something different. I did a larger amount of the same thing and got the same result. I made money again.
Now I ask you, if you have an investment theory, a plan, a model that you’re following, and that model or that plan is consistently giving you bad results, why do you continue to do it? I just don’t understand that situation. Why would anybody do that?
What’s the Point of a Stop-Loss?
You know, if you continue to lose money and the advisors that you have that are talking to you about how to invest your money are saying that you need to have a stop loss, why do you need a stop loss? Seems to me the only reason you’d need a stop loss on anything is if you thought you were going to lose money. In fact, you know you are going to lose money, so you put in a stop for the amount of loss. Now, why would you want to be investing in anything that’s going to lose money?
On the other hand, if you buy a piece of real estate and the real estate’s making you money and you are getting cash flow every day and you are living off that cash flow for the next 10, 20 years of your life 30 or 40 years of your life whatever it is, there’s no loss.
As the properties go up in value or down in value in a short period during market swings, it doesn’t bother you because you’re making money, you’re getting cash flow—month after month, year after year, and the benefit of the mortgage being paid off, and the benefit of the property going up in value, and the tax advantages that accrue from real estate investing. You are getting all of these valuable things, and it’s happening deal after deal after deal after deal. Why would you want to do something else? Why would you want to go buy something that is volatile?
I mean, there are other good investments, don’t get me wrong. I mean, I have got some friends that really understand investing. And they do some other things that I think are pretty neat. But none of them have anything to do with buying stocks and hoping they go up and down. None of them have anything to do with day gambling, as I like to call it. It’s not really day trading, it’s really day gambling—you know, it’s like what is going to happen, roll the dice we’ll see am I right or am I wrong.
Let’s guess. And of course if you use charts and graphs in these things you are counting cards and you are a little bit better at it, and you know, some people are probably good enough at it that they can beat the odds on a regular basis. Of course, what are the odds? How much do you have to lose to have lost too much? In my book I don’t want to lose anything. So it’s a different belief.
Have You Lost Money in the Stock Market?
But in most of your cases I would suggest that if you continue to do the wrong thing and get bad results, it is not going to stop you, you’re just going to continue to do the same thing. For example in my seminar I ask — many, many times I ask this question, how many of you lost money in the stock market? And you know 99 percent of their hands go up, including mine.
I have lost money in the stock market. And then I asked okay, how many of you—and this is the embarrassing question—not have you lost. I mean, hey, burn me once shame on you, burn me twice shame on me. I asked how many of you that very next paycheck put more money back in the stock market through your 401(k)? And 80 percent of the hands in the room go up, and that’s insanity. I mean, you get burned.
It’s like me sitting there—you know, you come home to your wife or husband or whichever spouse, and one of the two slap the living bejeebers out of you, just knock you silly, knock the snot out of you. You get up the next day and go to work, come back home at the end of the day and do it again. How long do you have to get the snot knocked out of you before you realize that you’re losing, that you’re being injured? How long does it take before you realize that? Or do you ever realize it?
The Investment Trap
There’s a thing called the investment trap. The investment trap is the theory that I’ve got to stay in what I’m in until it comes back to where it was otherwise I lose money. If I don’t get out, I haven’t lost any money. Now, I know a lot of you believe that.
In fact, I fell for that investment trap on the very first piece of real estate I ever purchased. I purchased a brand new condo from a salesman, a seller. Don’t ever buy anything from a new homebuilder ‘cause you’re going to get ripped off. Because why?
Because they’re selling the property for what they say it’s worth, not what it’s really worth. So whenever you buy a new home, it’s like driving a car off the new car lot. It goes down in value. Not until it’s sold on the open market do you really know what the property’s really worth.
Don’t Buy Condos as Investments
I bought a condo, and I fell for the hype. First real estate I ever purchased in my life. I was just a young kid and they told me oh, my gosh, this condo’s going to go up in value so much. It’s in a great location, location, location. This is going to be the new Galleria.
This is just—you know, Beltway 8, Westheimer’s going to be the new hot spot, the center of everything. All it turned out to be the center of was a big giant area that is just filled with houses of stupid people that bought on the dream that it was going to be something and never was. See, that was called speculation, and I fell for that.
But what was worse was I held that piece of real estate for 27 years. During that time the condo rented for about a hundred dollars a month less than what the mortgage payment, principal interest, taxes, insurance, and home mortgage association fees were. So I lost about a hundred dollars a month, and again, I thought that was okay because I was hedging my bet, because I was getting the tax advantages of the write off.
I thought it was okay because the principal reduction was being paid down. And 27 years later I finally woke up and told myself, you know what, this thing isn’t coming back. I paid $40,000 for it. I lost a hundred dollars a month for 27 years, and then I sold it for $27,000 and lost $13,000 more.
Now the truth of the matter is I lost the $13,000 27 years ago. I could have sold the property 27 years ago and not lost the hundred dollars a month. But I was not sophisticated enough to understand that. I was I just like everybody else out there. I wouldn’t say dumb as a rock. I can consider myself dumb as a rock. I don’t consider you dumb as a rock, but the things that we do seem like we’re dumb as a rock. When you’re losing money, month after month after month putting it in your 401(k) and watching your 401(k) grow smaller to where now most people lack what we call the 201(k), why would you do that?
