Every investment has a natural cycle for when it is popular and not so popular. When prices are high and prices are low. Investors are looking to buy low and sell high. It’s how they make their money. If the general public are selling then investors are the ones buying. When the general public are buying, investors will be selling. There always has to be a buyer and a seller.
Investors specialise in finding investments that are out of favour with the general public and buying them at a low price. When the investment becomes popular again and there is demand for the asset the price will go up and investors will start selling the asset. The asset can be anything that has a deemed value.
Throughout our training courses, we cover 4 categories of investing – business, property, paper and cash. Within each of those categories are different types of investments for example in the property category there is residential property that consists of single lets, multi lets, hmo, apartments and student lets as just some examples of residential property. But you also have commercial property, holiday lets, garages, storage. All examples of different types of property investments. There are hundreds of different types of sub-categories within each type of investment not just property. All of these types of assets have their own investment cycles that go up and down. As an investor you can buy into any downward trend sub-category ready for when the next upward trend begins.
The question I am always asked is how do you know the cycle is at the bottom and ready to go up?
It would be lovely to say I have a crystal ball that says invest now. It doesn’t work that way. What you need to do is look at what the markets are doing and assess where you think that investment is. Then cross your fingers, take a deep breath and hope like hell you have reached the turning point.
When analysing an investment, I always assume that it might go down slightly when I buy it. Be prepared. If it does go down don’t panic. It will go up. Your timing just wasn’t quite perfect but you’ll get it right next time.
Investment cycles vary in time for each investment. The gold bullion cycle can last decades. Property investment cycles usually cover a recession whether that be a year, 5 years or a decade. A tip is to look at the trends for recessions within your country. Then overlay the property cycles and you will notice a pattern of when prices go up and prices go down. It doesn’t just need to be property. You can apply this to any asset and see how it is affected during the recession cycles.
Once you buy the investment at the low level, sit back and wait for it to grow and either cash out at the high or as close to a high as you can. Or you could hold the investment and let the next cycle kick in and do its thing. It is unusual for a low to go down below a previous low. Inflation, usually ensures the low is higher than the last time.
Imagine a coil, continuous going around in an upward spiral. This will represent the bottom of the investment cycle the asset you are investing in.
Example 1 - I purchased property in 2002 for £35,000 the property went up to £120,000 by 2007. During the recession the value dropped and the new low was £95,000. More than £60,000 higher than the previous low and this was during one of the worst recessions in history. Property prices are again rising. Who knows where the new high will be. Already house prices are higher than the 2007 price. There’s probably room for them to go even higher. I wouldn’t be surprised if the new high isn’t around £150,000+ for that property. Just watch the cycles and see what happens. Be realistic if you are waiting for prices to drop back down to start investing. Don’t expect the property to drop back down to £35,000 as that is highly unlikely to happen.
Example 2 – I started buy Gold Bullion in 2004 when the price was around USD400 by 2008. I was then selling at around USD1822 in 2011 even though the price kept going up to USD1896. The price of Gold bullion dropped by January 2016 to USD1100 but today is trading at USD1587. Where will it go this year is anyone’s guess. 20 years ago, it was trading at USD200 will it go back down to that level is very doubtful. Inflation and demand will probably keep it at the higher levels.
Every investment has a cycle. To take advantage of the cycle investing you have to track the data, keeping your own records. Identifying where you believe the cycle is and where you believe the price will move next.
A tip I can offer is to watch the newspapers. When the newspapers say this is the best performing investments and the next best investment, you know the general public will be buying and the price going up. When the paper suggests you get out of an investment the general public will be selling and the price going down. An investor is contrarian to the general public. That is when they sell an investor buys, when the public buy an investor sells.
Every investment has a natural cycle. Making money from an asset is about understanding where it is in the investment cycle and being contrarian.