Investors follow the herd. That expression means that when others are buying it is more comfortable to buy into that same popular investment. One current example is the Facebook IPO. You had to have an inside track, connections and influence to get in on this sure thing. Now that the deal is done and the IPO is history, the truth about the value of the Facebook investment is coming out. High flyers were tipped off by the investment banker about the exaggerated value of Facebook shares and likely we will see more investigations into who knew what and when they knew it. The CEO of Facebook saw an opportunity to fill the coffers and increased the size of the IPO offering and at the same time the insiders realized the value of Facebook did not support the IPO share price. Those so called lucky investors who got in on this IPO lost big money right away.
One of the most successful investors of our time, Warren Buffet, has a saying that goes something like this, “Be fearful when others are greedy and be greedy when others are fearful.” This advice explicitly points out that following the herd is not the way to make money. Performing due diligence to find unrecognized value and buying when a solid investment is in a downtrend is a way to make money.
The investing game has changed considerably over the last few years. Investments that used to be a “buy it and forget it” money making deal lost value at catastrophic levels. Banks used to be money making machines, solid long term investments, investments banks and brokerage were ‘blue chip’ can’t lose investments. Real estate was a solid investment because as many people said, “they aren’t making any more land”. The traditional investment model was turned upside down and many people who still have money are keeping it on the sidelines.
Using the Buffet rule of “be greedy when others are fearful” can be used to find opportunities. Real Estate is experiencing long overdue growth, after all people need homes and recent job growth provides workers with the money they need to purchase homes. Gold is currently in a downtrend for a number of reasons, including an improving economic picture in North America and slower growth in China.
It important to know that the Chinese government closely monitors economic measures and adjusts their monetary policy to stimulate and slow growth as needed. This means that the slow growth in China will likely be temporary as pointed out in an article published by Economy Watch.
The Chinese people are big gold investors, so as the Chinese people get access to more Yen, you can bet the rate of Chinese investment in gold will increase. The recent downtrend in the price of gold could well be an investment opportunity to get in on a future uptrend in gold prices.