On Saturday afternoon, a friend of mine called me and said “You don’t have to watch the Illinois game.” I said, “They lost right.” He said, “They were up 25-7 and the quarterback had 175 yards passing in the first half. He ended up with 190 yards passing for the game because they kept running the ball to milk the clock.” I said. “They were playing not to lose.”

I think all fans hate it when teams play not to lose. Every sports fan wants their team to continue pouring it on, go for the jugular, forget the prevent defense!

Then again late night Saturday I was sitting at a No-Limit Texas Hold’em Poker tourney. I had done fairly well to become chip leader with 9 players left. I began to tighten up. I had all these chips and I didn’t want to lose them. An hour later I was the short stack. Wow! How did that happen? I was playing not to lose. I had lost my aggression and was folding almost every hand. Luckily I came back and won the tourney.

What does this have to do with investing? I hate to say this but many investors are investing not to lose. When it comes down to investing, one’s first thought is usually, “Am I willing to lose this money or can I afford to lose this money.” While these are both very responsible questions, they stem from a mindset that limits your potential.

I’ve fallen into this mode. I was very active in real estate over the past 3 years. When the market turned late last year, I sort of went into a shell. I had done so well until then that I began to fear losing my equity and net worth. That mindset was reinforced by all the media bubble-talk, and it made me sit on the sidelines the past 8 months. I am a firm believer that you can make money in any market. I had let my fears get to me.

Yesterday I was sitting and Barnes & Nobles reading the new Kiyosaki & Trump book and came across this passage (from Why We Want You to Be Rich):

One day, during a brief meeting in his office, Donald simply said, “I invest to win. Don’t you?” With that statement the defining difference appeared. He and I invest to win, while others invest not to lose.

We have talked here about the advice, “Save money, get out of debt, invest for the long term (generally mutual funds) and diversify.” Late that afternoon, Donald and I discussed how we did not focus on saving money. In fact, we are both millions of dollars in debt – but good debt. We do not diversify, at least not in the context that most people use the word diversify. And while we are both long term investors, we do not invest in mutual funds, at least as a primary vehicle. Why? Because we invest to win….
Most other financial experts are telling people to play it safe, to live below their means. They are telling people that investing is risky and that they need to save and avoid losing. The experts aren’t focused on winning. They’re focused on not losing.

This just reaffirmed what I’ve been thinking. Maybe it’s a sign. Three different situations, same result. With that, I put an offer in for that duplex in Tucson.

Comments (7)

Good luck! I just appraised a place today (So. Cal.)that has a contract at $700,000 and three other listings in the project, same model, for $600,000. How could that happen, you say? Well, it’s been two weeks since the offer was written and in that two weeks three different “investors” have decided that they don’t like paying $5,000 a month for a $1,800 per month return.

The “investors” that got out three months ago look like genuises. The ones who hung on are having their butts handed to them on a plate.

Good real estate investments make sense -before- considering market trends. If the values go down they still make sense and if values go up, there’s your icing. But don’t try to sell me on the idea that you, or anyone, knows where values are going. It’s a crapshoot.

“Invest to Win” is a good mantra. I wonder how this relates to Phil Town’s Rule #1: “don’t lose money”, which is basically the opposite stance.

Does it matter that you’re focusing on REI while Phil is focusing on stock investments?

REI vs. stocks is a whole another can of worms. I’ve had so-so results investing in options, stocks and mutual funds. My feeling is that I lose control of my investment when it comes to paper. I don’t believe that I can do as much due diligence with paper as I can with real estate.

But to answer your question, I do not think it makes a difference. When you invest, you should be investing to make money and not thinking about what if you end up losing money. If you’re thinking about that, maybe you shouldn’t be making that particular investment.

I’ve been thinking about the difference between REI and stock investing and why “don’t lose money” might work better in the stock market than real estate.

I think it is easier to lose money with a stock investment than a real estate purchase. In most real estate markets, your biggest concern is losing “real” money by failing to beat out inflation. With stocks, since everything is based on future earnings and not so much on underlying assets, it’s very possibly that your investment might lose you 50% or more of your equity.

Maybe I’m just saying this because of my own naivety with real estate investing, but that’s how it seems to me.

Another thought: is land a commodity? Is anyone trading land as a commodity? It might be difficult because there is more diversity in the value of land than there is in say… potatoes or “energy”, but if you classified things properly it might be interesting to trade land as a commodity.

The main problem I see with stocks is that all the information you have is based on reports or market experts. If you were an employee at Apple, do you think that you have an advantage in knowing when to buy Apple stock? What’s really going on at the top? Do you know whether they are making money or bleeding? I never did for my company as an employee.

When I buy real estate, I know what my numbers are. I know if my tenant is paying rent, I know my mortgage, I can calculate if my property is making money monthly. I can also improve my property by adding another unit, more square footage, increasing rents, new paint, etc… I have some control over how my investment performs. With stocks, I’m just pressing the “refresh” button hoping for it to go up another $0.25.

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