How Do The Rich Make Money?

How do the rich make money?  This is how:

 

Buy when every body is selling and sell when everybody is buying. 

‘So’, you say.  ‘Tell me something I didn’t know!’ 

Yes, I admit it. Everybody knows this.  It’s intuitive, even if you never, ever heard anyone say ‘Buy Low, Sell High’.  That sort of advice is common sense. 

Still, if everybody knows it, and it sounds so easy, why doesn’t everyone act on this advice and become rich?

First of all, is it true?  Yes.  It is.  It is the basis for almost all wealth generation.  It applies to stocks, real estate, gold, jewelry, inventory, supplies, food, foreign currency, commodities: just about everything.

So, why don’t we do it?

Let’s take a look at today’s world right now in the United States.  Today, when I turn on the television, or read a magazine or newspaper, I read or watch stories on how absolutely terrible the real estate market is.  I hear everywhere about foreclosures, people being thrown out of their houses, real estate values plummeting,  banks writing off billions of dollars of dubious loans, recession, unemployment and general catastrophe all around me.  It sounds absolutely terrible and totally intimidating.  I think to myself ‘Wow, Now is a terrible time to buy because nobody wants real estate…’ Right? 

Wrong!!

 First of all, the media has always made every news story as horrific and fearful as possible without coming right out and lying about it.  If there is a hurricane, and you watch the news, you will think the world is coming to an end.  But guess what?  The hurricane passes, the trees that were blown over get cleaned up and in a few days, life is back to normal.  It wasn’t the end of the world.  So, if you are wise, you will temper everything the media says with the knowledge that they are trying to sell their product, which is fear.  Why?  Because the media’s product is fear, and fear sells.  My advice is to ignore them.  Listen to the news if you must, but only pay attention to the facts.

 

Secondly, it is human nature and good sense to take precautions.  If a storm is coming, you go inside and seek shelter.  If it’s cold outside you put on a jacket.  The way the media presents the horrific news to us, it is common sense to stop buying real estate until ‘the worst real estate situation since the great depression’ is over.  But, there you would be wrong.  Economically speaking, now is exactly the time when you want to buy real estate.  What you have to ask yourself are the following questions:

 

Will people ever again need or want a house?

How has real estate been as an investment over the last 100 years?

Is everybody selling now?

Are prices falling?

 

Let’s answer these questions.  Will people ever again need or want a house?  Yes.  Without a doubt.  People will always want and need a place to live and call home.  (This applies to unimproved land as well).  What are people going to do instead, live in caves?  I don’t think so.

Has real estate been a good investment over the last 100 years?  Yes.  If you were to chart the values of homes/land you would find in most markets that the price goes up, drops somewhat, then goes up again, then drops again, then goes up, then drops etc…  The interesting thing to note is that the drop is almost never as much as the previous low.

 

Is everybody selling now?  Yes.  Why is everybody selling?  They’re scared and have gotten themselves in a bad economic position.  You can’t blame them.  However, if every body is selling and nobody is buying then that means there is high supply and low demand.  That means the price will fall until demand picks up and there is an equilibrium.  Now is the time to buy since the prices are falling.

 

Are prices falling?  Yes.  Economically speaking, they have to fall since there is an oversupply and under-demand. 

What is the rule we talked about earlier?  Buy when everybody is selling and sell when everybody is buying.  If you do that consistently, you might just end up rich.