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ON THE MONEY: Distressed sellers boost market for wise investors

By John Grace

Contributing Columnist

I intend to do everything possible for investors to avoid being distressed sellers. 

Distressed selling occurs when an investor is forced to sell assets at a significantly lower price than the actual value due to financial difficulties or market conditions. 

Instead, my efforts are to assist you in being well-prepared to buy from distressed sellers, thereby preventing the need for distressed selling and instilling confidence in your investment strategy.

As Zig Ziegler wisely said, “Your attitude, not your aptitude, determines your altitude.” This rings true in investments, where a positive and proactive mindset helps us better prepare for the good, the bad and the unforeseen and empowers us to seek opportunities for growth and take control of our investment decisions.

Warren Buffett enjoyed favorable press earlier this year when Berkshire Hathaway achieved a remarkable market capitalization of nearly $1 trillion. Despite this achievement, Buffett considers his investment in Berkshire Hathaway the “dumbest stock I ever bought.” 

Buffett provides a powerful reminder that even the most successful investors make mistakes. Soon to turn 94, Buffett believes the company’s value that he bought in 1965 could have doubled if he had made different decisions earlier.

Buffett underscores the importance of learning from past mistakes, which can enlighten us and better prepare us for a compelling future.

In 1965, investors had to buy and hold, no matter what. It was common knowledge that you had to live with your losses. 

Today, thanks to technology and the work of agile investment advisors, who are quick to adapt to changing market conditions and provide personalized investment strategies, individual investors can first determine how much loss is acceptable to them before putting their life savings on the roller coaster to crash and burn, followed by setting a goal to limit their losses within their specific parameters before the grits hit the pan.

Despite the significant losses in the stock indexes in 2008 and again in 2022, investors who applied active management strategies and greater diversification outside of stocks, bonds, and real estate could have limited their losses. In an attempt to reduce portfolio risk, these diversification strategies could smooth out your returns. 

Now is the perfect time to establish strategies for limiting losses. By doing so, you too will be better prepared to buy from distressed sellers.

Now that flooding quickly occurs everywhere, let us follow the animals’ lead. Animals don’t follow the prettiest, the strongest, the biggest or the loudest; they tend to follow the smartest in finding higher ground above the water level. 

They don’t try to “weather the storm.” They don’t drown; they turn around. You can learn how to turn your assets around.

“Now we are in the second stock bubble since early 2009 and the second real estate bubble since mid-2012, financial advisor Harry Dent wrote in June. “The bubbles appear to be peaking close to each other after surging the most into late 2021 and are approaching a final top here in 2024. 

“These two bubbles will burst more together this time, given how large and artificial they have been, in response to one thing: $37 trillion (and still rising) in stimulus.”

In addition to focusing on stocks and real estate, shrewd investors watch the Consumer Confidence Index. It peaked in 2018 and fell off sharply in early 2020 with COVID. It has since backed up but may move down again, which would not bode well for stocks and may indicate a market top.

As animals seek high ground in flood waters, investors can limit their losses when markets seek new lows. Don’t drown. Turn your assets around.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

John Grace is a registered representative with LPL Financial. His On the Money column runs monthly in The Wave. The opinions expressed here are for general information only and are not intended to provide specific advice or recommendations for any individual.

       
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