There’s an old saying that you may have heard. It’s used particularly in relation to real-estate, but it can be applied to many forms of investment. It’s:
You make money when you buy, not sell.
One of my new readers asked me to explain what it means:
Could you expend on this statement a little or maybe you have some related blogs about this on your site? “…buy at the right price you make money when you BUY not when you sell.”
I don’t think I’ve ever written explicitly about this age-old investment adage, because it’s almost a tautologogy …
… after all, an investment is something that you should never need to sell!
To me, a true investment is something that generates ongoing income. So why would you ever sell it?
Any ‘asset’ that you buy, specifically to sell to (hopefully!) generate a profit, is in reality a SPECULATION, not a true investment.
Business makes these kinds of speculations all the time: buying trading stock (or labor) with the expectation [read: hope] of selling it at a sufficient price to generate a healthy profit.
Businesses take a calculated risk in doing so, hoping that the potential profits justify the risk, but …
… 90% of business owners are wrong!
They say that 9 out of 10 businesses fail within their first 5 to 10 years. They fail for lots of reasons, but one of the main ones is that these simply cannot make enough money when they sell due to competitive pressures, new products, outdated manufacturing techniques, low volumes, etc., etc.
As investors, we cannot afford to make the same mistake, otherwise we are just gamblers – gambling that: red will hit more times than black; we will roll a natural 7; AAPL stock will go long this month; Las Vegas house prices will continue to climb.
On the other hand, as true investors, we have to buy well, then hold on for the long run.
It is the income from our investments that makes us rich (by funding our dream lifestyle), not the amount that we could sell the investment for.
How about you? Are you an investor or gambler? Do you see the difference?