Today we discuss how to succeed in any market and dive into identifying the perfect time to invest. This is a timeless strategy that you can use again and again.
Welcome back everybody to the AJ Osborne podcast! I’m excited to have you back tuning in for another episode.
It goes without saying that there’s been a lot of uncertainty this past year. From politics to markets, to industry, people are concerned and curious. Not only that, they have a lot of questions.
People want to know whether or not the real estate market is going to continue upwards, or if there is going to be another correction. People want to know if now is the right time to invest in certain industries and asset classes.
People want to time their investments and resources as best they can.
So is it a good time to take the plunge and jump in? Or should you wait for a better opportunity at a later date?
The answer… is yes. Yes to both of those questions.
But there’s more to answering these questions and being able to effectively recognize when it’s go time, or when you need to take a step back.
This is exactly what we’re going to dive into and dissect today. We’re going to look at the things that you need to be thinking about and paying attention to in order to answer these questions.
We’re going to talk about the importance of having a timeless investing strategy that you understand. We’re also going to talk about risk, letting your money make decisions for you, and much much more.
Our goal here today is to give you the tools and to help prepare you for success no matter the market conditions.
Thanks for listening everybody!
In this Episode You’ll Learn:
- How to recognize what’s the best time for making an investment.
- Importance of having a timeless investment strategy that you understand.
- Why AJ’s investment timing and strategy are not dictated by poor economic conditions
- Let money make decisions for you.
- The tools that come in handy when making investment decisions in times of economic recession
“Don’t try to guess, predict, or play God. Just see if your investment strategy makes sense.” – AJ Osborne
“Everything needs to be looked in the long term, but it should make sense in the short term.” – AJ Osborne
Cedar Creek Wealth – www.cedarcreekwealth.com
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Read The Transcript Here:
C2F 119 – The Perfect Time to Invest | How to Succeed in Any Market with a Timeless Investment Strategy.mp3 transcript powered by Sonix—easily convert your audio to text with Sonix.
C2F 119 – The Perfect Time to Invest | How to Succeed in Any Market with a Timeless Investment Strategy.mp3 was automatically transcribed by Sonix with the latest audio-to-text algorithms. This transcript may contain errors. Sonix is the best audio automated transcription service in 2021. Our automated transcription algorithms works with many of the popular audio file formats.
So how do you achieve financial freedom, gain wealth and live life on your terms? That is the question, and here is the answer. I’m AJ Osborne. Welcome to Cash Flow 2 Freedom.
Welcome to Cash Flow 2 Freedom. And this week, I guess not today’s, it’s a weekly thing, this week’s episode is happening during the Thanksgiving week and it’s a time to give thanks. But we’re not talking about that. I’m not going to talk about give thanks. So I am going to talk about though, what you should be thinking about during the break. And maybe if you’re like me, when I get some moments of time that I’m not working, I am thinking about the outlook and positioning and using it to think more big picture stuff. So as I think most people use the breaks as a reflective period and maybe, because it’s the end of the year so starting out kind of the end of the year, people are also figuring out, what should we do and how to move forward. So today’s topic is how to move forward in today’s market. Or should I be investing in today’s market? I don’t know. Conner will think up of a good line.
Now, with that said, the whole premise about what I want to talk about here is the fact that a lot of people feel very unsecure at this point in the market cycle, which is a good thing. It’s a good thing that you’re actually taking pause and thinking about things because of where prices are at. So first of all, let’s do a little background on why prices are the way that they are in the real estate world. Well, it doesn’t even matter. Also, stock market world, just why prices are the way they are and how we got here? Because a lot of people are looking at the news and the reality that we’re living doesn’t seem to match the markets. We hear people talking about how the United States has been destroyed and how unemployment is at record highs and how we’ve seen this massive contraction in GDP. All of which are true. Business foreclosures have been skyrocketing. And in fact, I think in the last six months, we’ve had more businesses close their doors than any other six month period time in the United States’ history.
So why in the world are we also seeing headlines of Jeff Bezos reaching hundreds of millions more and all those headlines that we always see. Multimillionaires are being created, stock market is soaring, real estate prices are going. The first thing we need to cover is the wealth gap has nothing to do with politics, it has nothing to do with that. It’s an economic process and the simple differentiator is the people that own assets and do not. So those that participate in the economy by owning assets become wealthier. This is exasperated during recessions and depressions because the government has to save the economy and the economy is built of assets and so they have to save assets, generally speaking. They do this through playing with money and money valuations. So why are prices getting higher? Well, in its simplest form, demand is getting higher. So demand is getting higher and higher in the United States because things are cheaper to finance; not to buy, but to finance.
So the people that can get financing, they can afford a lot more, but there’s a lot less inventory on the market as prices rise and the chaos that we’ve seen in supply, lumber prices, everything else is going through the roof. That’s because of contraction of our supply channels from other countries. So price to build is increasing. More people have decided they’re going to wait and not sell their home to see what happens. So you got more people that are waiting and to not sell their home, less home start ups, builders are slowing down, worried about things, yet demand to acquire homes is being fueled by cheap money is rising. Also, money has to have somewhere to go. So when you drop interest rates, what the government is doing is it’s forcing money in a certain direction. It doesn’t want people to hold cash on hand. Because if everyone’s holding cash, no one’s reinvesting, the economy ceases.
So what they do is they make money worthless and then the risk of holding your money becomes even higher because it’s guaranteed that cash is going to lose money through the thing called inflation. And the cheaper money gets, generally speaking, the higher inflation goes. So more people rush to put their money to work because they know prices are going to go up, which means their money is worth less. It’s quite the vicious cycle, and that’s the cycle that we’re in. Is that sustainable? Is it going to crash in six months? I’ll tell you right after this message. No, I’m totally joking. Actually, I don’t have any idea. But the idea that money is doing what money does, it’s following returns and there’s no returns to be held in bonds or in cash. That means it’s going to riskier assets. That means it’s moving into assets that don’t have as much demand. Now, this creates a big adverse effect because if you’re a publicly traded company, this really helps you out because the markets have access to your stock. If you are a privately owned business that’s located in New York or California, the government is telling you to shut your doors. So we see a massive discrepancy in what’s going on.
Amazon has won incredibly big as all the doors have shut down and forced everybody to go online and cheap money has fueled a buying frenzy of their stock. So not only is their stock outperforming, but so is their revenue. This was, of course, bound to happen; supply and demand. Real estate prices going up; those that own the real estate are getting richer. If you own a lot of real estate, you make a lot more money. There’s winners and losers. It’s very clear. This causes social unrest, as you can imagine. People are losing their jobs. They see people getting richer. And business owners that are just trying to make a living are getting shut down while titans of industries are consuming and gobbling up the market. We live in a Keynesian economy, one that’s being — the economic philosophy of Keynesian, the markets are very much right now being controlled by a central government and that the government is playing the active participator so-called in the government is what’s happening right now.
And good, bad that has nothing to do with today’s topic. It actually shouldn’t have a lot to do with your investing philosophy at all. It should just be an understanding of what’s happening. The understanding that how these market cycles are driven leads you to investing philosophies. And this is where we’re going to get into – is it a good time to buy? So is it a good time to buy or should you stay out of the market? The answer is yes. At the end of the day, I don’t know what’s going to happen next year. Of course, I have underlying thoughts, guesses. We’re looking at things, we have concerns, yet we have hopes. I’m not really going to get into any of that of my personal opinions on time frames and things, because it doesn’t necessarily directly affect my investing strategy, which I’m going to talk about here and why it doesn’t. But also two, when there are more guesses, I don’t want it to affect my strategy.
And there’s a lot of people that say, well, the data is clear and so it’s not guessing. You know. Those people are crazy. They have no idea because there’s a lot of things that give huge merit to what’s going on. And there’s lots of things that may say that this may not end. Right now, it is very fashionable to be calling the housing market crash. Go look on YouTube. That’s just though, because everybody wants to call it because they didn’t call it in ’08 and they saw how popular everybody got when they were calling it. So there’s also these social things that are going on and people are grabbing attention online and making vast claims. Now, more people have been destroyed by calling the end of a market cycle than have ever been made by leaps of ten to one. So there is always, always someone saying the economy is going to crash. Yet economies crashing are not the norm. They are the outliers.
So generally speaking, those people are wrong nine times out of ten. Now than the one time they’re right, they go and they shout it from the tops of the roofs and they let everybody know that they were right. Once again, I’m not saying the market is not going to crash. It totally could. But I’m saying that the guy yelling it from the top of the roof that he was right one time, well, if you say that the market is going to go up every single day or down every day, you’re eventually going to be right. That’s insanity. So now that I’m off my soapbox. All right, what that means and how you should participate? I let my money make decisions for me. In 2005, we got out of the real estate market because we knew there would be a crash. No, once again, I’m just joking that obviously I just stated that wasn’t true. But we did get out of the market. So we did get out of the real estate market in ’04 and ’05. But it has nothing to do with the fact that we knew that there was a crash. The economics of the situations no longer made sense, so we stopped doing it. The economics of real estate stopped making fundamental cash flowing since. The assets didn’t work anymore, so we stopped.
And at the time I just assumed everybody else was smarter than me. And it wasn’t because I was smart. It’s just because two plus two didn’t equal four. This is a simple strategy that you got to implore. Don’t try to guess, predict, play God. Just see if it makes sense. And if it makes sense — and what I mean by making sense, that it’s a controlled investing strategy with limited risk based upon cash flow and fundamentals, then it makes sense because my investing strategy should make sense in a down market, in an up market, in a sideways market, because it’s a business, not gambling. And I’m getting way too many people asking and saying, hey, in the next six months are we going to see a drop? What are you doing this? Where are you doing that? OK, what we’re doing is we’re buying assets that we know have clear upside value-add propositions, that are cash flow based, and the demand is driven by the customer and which the asset serves, and the demand is real. They’re actually needing to utilize that and it’s a long term demand. So we look everything long term. Everything needs to be long term, but it has to make sense in the short term. So making sense means it’s paying me.
Equity is gambling. So if I believe that, oh, this is going to be a great thing in two years because I’m going to get all this appreciation, well, then you can get burned because you’re assuming you know how the markets are going to react. And you don’t. And so what you need to implore is, listen, I have an investing strategy or philosophy that we can implore. Now, I’m doing development and a lot of it, and that makes me nervous because there’s inherent risks with development. But we’re going into markets that have sustainable demand and we can limit our risks by measuring not only the current demand, but the pricing and the spread at which we can get there. Then it’s a time frame issue. It’s not a flipping, it’s not anything else like that. It’s a starting a business. And we are just measuring the time frame in which the business will take to breakeven and become profitable.
Does that mean we can fail? Of course it does. Absolutely. I could fail tomorrow. We all could. We don’t know when we get in the next war. We don’t know when the next nine — well, even then though, those things you should still survive. But you don’t know when COVID wasn’t that bad. But let’s just be honest. And by that bad, I don’t mean that insensitive in any way, shape or form. I understand that people are suffering, everything else like that. But in historical standards of major viruses that have attacked us, it’s not that bad. If it was anything like the Spanish flu, if it was anything like major viruses that had a death rate of three percent, which is like six times higher than its current death rate, or more, we’re at roughly somewhere around a half a percent. Then if it would have become like that, think about our reaction and what happened to the economy in its current state during this. When we’re trying to rearrange our lives to protect ourselves, You could only imagine if it was of those standards, you would be in your house and you would never leave. No one would work anymore. And that I don’t know that my businesses could survive obviously. That’s totally out of my hands.
So there’s certain types of risks that I have so much lack of control, I don’t even put it into the equation. Yes, an atomic bomb could go off in New York and our country could completely shut down and we could go into mass war on everything else. Of course, that can happen. But that’s still out of my control. There’s no reason to make any kind of plans based upon that. So you have to put those things to side. So I understand every day my businesses can fail. I’m doing controllable risks, and I’m making sure that the investments that I make make sense today, they’ll make sense tomorrow, and there isn’t a winning event. I’m focusing on cash flow, redeploying that cash flow at a known rate of return and compounding my wealth and compounding my income on a sustainable strategy. Those strategies change, right? Remember the goal, you’re on a pathway and they can pass. So how you win in this come, how you win at the top of the economy is the same way you win at the bottom. You make sure you have good deals, you focus on the cash flow, you focus on real demand.
And when I say real demand – the housing crash was driven on artificial demand to a large extent. These were people that were investing, getting rich off equity. Everybody owned eight homes. The demand was from investors. The demand was not from the end true consumer. This is one of the things that you really need to get to the base of of any investing strategy. You need to focus on your moat. How is that investment protected? And then two, identify all the things that can bring that investment strategy down, and if you’re not OK with the risks, don’t do it. Although these are simple, they’re timeless. And at the tops of the markets and bottoms of the markets, it’s so important to make sure that your investing strategy is timeless because the markets are what propel us forward. And in the long term, markets are efficient animals. There’s a lot of things to be argued about government intervention, things like that, but we’re not going to get into any of those deep philosophies. We’re going to just talk about so far in the United States, really, markets have been fairly efficient much over the long term, but efficient market theory is complete garbage in the short term.
Markets are so inefficient because they are fueled by human emotion. They are fueled by short term prospects. And if you are fueled by those, if the market turns on you, then you will get slaughtered. You need to make sure that your strategy that you have is focused on the long term and can survive those long term things in case a short term market is inefficient. And then when prices re-correct — I view that it’s like an inventory of how fast I can speed up my business or how many things I can buy. At the bottom of a market, I should be positioned so I can buy more assets and I can invest faster. And then as the market pushes my investing strategy and pushes that GDP growth — if you look at GDP growth and contraction growth, it’s really interesting. You have a speed up period and a slow down period. The speed up period is what we all remember because we see this massive boom in wealth and income in the United States. And then you have a slowdown or contraction period. Realizing though, that the boom is going to happen again. So during that slowdown or contraction, price valuations drop, cash flows drop, and the perceived notion of the future is way less than it is in the present day. But why that doesn’t make sense is because it’s just around the corner. The next trend is coming.
So these perceived notions at the bottom and at the top of the market are exaggerated. The bottom human feels like it’s all over, right? I feel this way, everybody feels this way. Right? In ’08, it was like, in ’09, it was like, well, that’s it. It’s all over, everybody. Pack it up, pack it in. We’re done. And then at the top of the market, after ten years of a market straight up, everybody that got started on investing in 2010, congratulations. You’re all geniuses. I mean, it has nothing to do with any of you. It’s because the market went up. And people that failed to recognize that are the scariest type of people there are because their success is predicated on markets going up, which will not always continue. Your success has to be predicated under an investment strategy, under an actual business model that can reproduce results. And during those exaggerated period of times of fear, during those exaggerated periods of times where assets will never be worth anything ever again, even though that’s never happened in the history of the world, those things you need to be capitalized, for me, that means it’s like a shift in my return.
I’m like, oh, I’m buying at this low price. I just know that my returns are going to be exaggerated over the next 10 years. Now, right now, when I’m investing, I know I’m going to work for my return. My value-add has to be on point. Because I am not expecting markets to deliver those returns. I have to make it. Now, if things go up for the next three or four years, that’s great. Thank you, AJ, my shining star, you got that extra, whatever, 12 percent on to your investing strategy. But that extra was given to me by the great invisible hand. It wasn’t given to me for my efforts. That’s a cherry on top, but that’s not my investing strategy. So, once again, create a business. Don’t invest, don’t gamble. Whether you’re at the top or the bottom of a market cycle, the fundamentals of your strategy should never change, and you need to analyze what the risk is and what the demand that would make that opportunity successful is. Like, where is that coming from? Where is that demand actually being derived from?
Some of the things that if you want to know that I get nervous about, the stock market makes me a little nervous because demand is so heavily tied to the central banks and low interest rates at the moment. That also makes me a little concerned with housing prices. Now, in certain markets, there’s massive demand, but I get worried that every half a point that interest rates go up, it eliminates — I don’t even know what the number is, but it’s a vast majority of the market; just a half a point in interest rates. And when we started buying real estate, we were in an interest rate of like six, seven percent. When my father bought his first home, it was 18 percent. Right now I want to buy a house if it was over four, because that just seems ludicrous to pay over four percent interest rate. So if interest rates went up to six, it makes me wonder what would happen and what markets would be affected by that. Now, that is predicated on inflation and government intervention. So do I think that that’s going to happen? Sure, why not? I mean, there’s no reason that it couldn’t.
As of right now though, so much damage is being done to the economy, we have a lot of things it’s not allowing there to be the inflation quite like we expected. Although I don’t care what asset class it is, there will always be bubbles that will pop up in when money is cheap. That always causes bubbles. I just don’t know where those bubbles are. So I wish that I could tell you, if I did, we’d all become billionaires together. But overnight too, wouldn’t that be nice? We’d all have to not nearly work as hard and we could just figure that out and be done with it. But I don’t know where those bubbles will be. So we’re always looking for cracks in the market and everything. And I’m not saying that there’s not a time to stop. Yes, of course there’s times to stop. The most important times to stop is if you don’t understand where the value is coming from in your strategy or you don’t understand the fundamentals of demand and how that’s going to drive and propel your investing strategy forward and going to create more cash flow and wealth for you. If you don’t understand that, you really need to question why you’re doing it. If you’re doing it because other people are doing it and have gotten rich, the amount of twenty year olds that have gotten rich is just phenomenal. None of them have ever gone through a recession, but they’re all geniuses.
So you need to remember that when you’re hearing that in the market. The only reason I say this too is because I remember getting started in that time, and sincerely, I wasn’t investing in real estate. And I was like, I don’t want to say depressed, but geez, I was totally bummed out because all my friends were getting rich. And I thought I was a smart dude. I’m not saying, wow, I was smart because I didn’t know, I was just an idiot. I just couldn’t make it work. Thank goodness I was dumb because I would have gotten burned. But there was no reason, though. I’m not saying I knew anything was going to happen. I didn’t. The numbers just didn’t make sense so I didn’t do it. But at the time, everybody I knew was getting rich. And when you’re in that environment, it is not only seducing, but you are missing out. And it’s OK to feel dumb and stupid. Now, that shouldn’t be needed to be justified. So it’s not like you need to sit here and say, oh yeah, well, I don’t need to make sense of all of those people getting rich. You don’t want to use that as an excuse to miss out on the party. And I see that going on a lot too. Well, just wait. I’m going to wait.
So after 2008, like, it was like 2015, everybody is like, well, I’m just going to wait till housing prices drop again. And you’re like, well, why are they going to drop again? There was no reason for that to happen. Yet I can’t tell you how many earlier — I guess technically I’m a millionaire — not a millionaire, of course, but a millennial. So I’m a millennial. And technically, yeah, I’m almost 37 now. I’m right on the forefront of millennials. But the younger millennials, including my family members and other people, they were like, we’re going to wait till the housing market drops again. In fact, when I bought my first house, everybody was like, what are you doing? We’re in the middle of a real estate crisis and there’s obviously going to be another contraction because of all these legitimate reasons, which I didn’t understand. But I was like, that just makes sense. So I’m going to do it. But in 2015, I was trying to convince people, no, you should be buying houses because the economics so the drivers, we’ve had a cut off of supply for so many years that all these people want homes and none of them can afford them because everybody went bankrupt. All these new people have come into the market and nobody’s been building because banks won’t lend to builders. The demand is there. There’s no reason for housing prices to go down. It didn’t make sense not to be buying.
And there was this remembrance that housing prices went down and that was a recession. So I think a lot of people just thought, oh, in the next recession, housing prices are going to drop again. Well, that was only true like once in the United States. And so a lot of people saying, oh, I’m going to wait in this idea that I’m going to be smarter and hold off and catch it never played out. And the only thing that happened was they massively missed out on the market, and to the tune which they can never come back from. So they’ll never be able to go back at those prices. It’s just not going to happen. The market has moved forward and moved past that. So it cost them a lot of money to sit out of the market for the last past six, seven years. And even if the market drops, how much the housing market would have to drop to go back to those prices? Once again, it would be another 2008 scenario, which not saying it can’t happen, but there’s been a lot of things that changed in the housing market to prevent that.
So anyways, we’re talking about stuff that I can go on for hours and hours and hours about, but remember to focus on the demand. Okay, everybody? Remember to make sure it’s a cash flowing action. Because are we at the top of a market? Yeah, but how long is the market going to go on? I don’t know. So if the market keeps going for another eight years, maybe we’re in the middle of it. But it’s weird and I get it. It is a scary time because we see these economic calamities but at the same time rising prices. And two, I don’t know that the prices are going to go down. So we’re buying, we’re building, but we’re buying and building with a full understanding that the market will re-correct at some point. It will. But that doesn’t change my strategy. And I hope that makes sense. And everyone I know you’re now more confused than you were when we got started. I apologize for that. I hope some people say, OK, no, I got it. But long term, not short term, people. You cannot control a lot of these major events in the world. Focus on what you can control and what you can repeat and build a business out of. Thanks, everybody, and be thankful. I guess that’s my Thanksgiving part in this whole thing. It was supposed to be a Thanksgiving podcast, but told you it wasn’t really. So be thankful. Thanks, everybody. Talk to you later.
Thanks, everyone, for listening to this episode of Cash Flow 2 Freedom. Be sure to subscribe to us for more and feel free to check us out at cashflow2freedom.com, or find us on Instagram and Facebook. And also, if you could leave us a good review, that would really help us continue to build out our content and our community. Thank you so much.
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