You Should Only Look at the Purchase Price of an Asset
Money is made by making a good purchase at a good price
I'll try to summarize in this first paragraph everything I know about investing in just a few sentences. "You can control the purchase price, but not the selling price." "Money is made by making a good purchase at a good price."
This concept is as straightforward as it seems. It doesn't require astrophysical science or anything similar. However, if you ask a bank manager, they're likely to offer you much more complex products, full of acronyms you probably don't know. These products make your investment seem more attractive and sophisticated, but such complexity isn't really necessary.
Let's look at how many investors overlook a crucial aspect:
They receive their paycheck at the end of the month and invest without considering the purchase price.
They sell a property and reinvest the money without evaluating the purchase price.
They receive an inheritance and act in the same way.
It's essential, before any investment, to assess if it's really the most suitable asset to buy at that time.
Covid and the Stock Indices
Take, for example, the Covid-19 pandemic and its impact on stock indices. Those who had a significant cash reserve during the onset of the pandemic and chose to buy stocks during the market downturn experienced considerable returns. In the case of the S&P 500, the return could have been 74%.
However, if the purchase had been made in January 2020, before the pandemic, the yield would have been significantly lower. This example illustrates the importance of timing in purchasing.
The Case of Bitcoin and the Crypto Winter
The infamous "crypto winter" began in November 2021, during which most digital tokens suffered drops between 70 and 90%. Our recommendation was to acquire 5% of our portfolio in Bitcoin at a price of $16,000. A year later, the performance reached 150%. This case highlights how the timing of the purchase is key to maximizing returns.
These examples show that success in investing is intrinsically linked to the purchase price. It's about identifying good opportunities and acting at the right time. To achieve this, two factors are essential: having cash available and the common sense to differentiate market noise.
The Psychology of Buying in Downturns
Buying during market downturns is one of the most challenging moves from a psychological standpoint. For this reason, many 'investors' (I prefer to call them investors rather than speculators) refrain from buying at these critical times. However, these situations often present the most lucrative opportunities.
Recently, a subscriber asked if the VIX was "broken." We have observed VIX levels not seen in the last five years. Following the logic I've laid out, perhaps it's time to consider purchasing this type of asset.
Investment Strategies in Our Portfolio
In our portfolio, we allocate a portion to investing in what we call "black swans", taking advantage of atypical market scenarios to add protection. The combination of cash and common sense in times of high market stress is when you can truly maximize investment returns.
This week, we have made strategic moves in the part of our portfolio focused on Tail Risk, buying assets at very advantageous prices.
According to Puru Saxena, we are at the end of an economic cycle. Although it's still possible to generate returns in the next 9 to 18 months, many movements are expected in the market. Historically, with the VIX at these levels, significant changes have always occurred, and they will do so again.