Peter made 38% from AEM in 1 year, Chris made 58% from AEM in 8 months
Nov '23 in General discussion
Peter made 38% from AEM in 1 year, Chris made 58% from AEM in 8 months
689 - Peter made 38% from AEM in 1 year
690 - Chris made 58% from AEM in 8 months
Recently, I came across something very weird.
A very successful real estate person was discussing investing in the stock market with me.
Statement 1: He said, "Eric - just because [insert stock or index such as S&P 500] went up 10% per year for the last 10 years doesn't mean it will continue to do so for the next 10 years"
This is a weird statement because in a sense it is true but it doesn't add any value.
Let me explain.
My friend - who is an extremely successful real estate person - "bets" that the Vancouver housing market will continue to go up for years to come.
The majority of his wealth is tied into Vancouver real estate and he leveraged to the max.
So when you are thinking about Statement 1: Just becasue S&P 500 went up 10% per year, it doesn't mean it will continue to go up 10% per year for the next 10 years.
You can easily create the opposing statement 2: Just because Vancouver real estate went up 10% per year, it doesn't mean it will continue to go up 10% per year for the next 10 years
Both statements are true. But to you as an investor - it doesn't add any value.
Why?
Because even if it doesn't go up exactly by 10%, what's important is the trend.
Losing sight of the overall trend and saying something that sounds smart like - you cannot predict the future - does not help the investor.
It doesn't matter if S&P 500 ends up going up by 11% or 9% per year for the next 10 years.
What matters is that USA is the strongest economy in the world and there isn't a better place to invest other than USA.
It doesn't matter if Vancouver real estate ends up going up by 11% or 9% per year for the next 10 years
What matters is that Vancouver real estate continues to be limited by zoning laws, construction companies can't meet demand and there's a constant influx of immigrants to push up housing prices.
If you think "Just because you can't predict the future of the market, hence you don't invest in real estate" - you will end up with the wrong conclusion and miss out on massive gains as the trend continues.
So when you are investing long term, take care of the big picture (the trend) first. Then you can narrow down for a good entry.
The historical return of a stock/market only gives you guidance on what's possible.
You will make much more money relying that the stock/market will continue to trend the same way than to bet on a reversal.
Cheers,
Eric Seto, CPA, CIM
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