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Tags: best | time | buy | stocks

The Best Time to Buy Isn’t When You Might Think

By    |   Monday, 16 July 2012 09:12 AM EDT

To get outsized returns on your investments, you’ll need to be a contrarian. That means most people will think you’re stupid for investing in what you’re investing in, especially when you’re choosing to do it.

That’s what makes investing a lonely game. There aren’t a lot of people who will come along for the ride with you while you amass your fortune. Why? They don’t seem to see the opportunities before them.

But the reward is to be had for the person who can recognize value. Let me explain.

Editor's Note: Join the 3.5% of Americans who are truly wealthy and financially secure.

The average person doesn’t buy an investment when things are bad. They buy when things are good. Sounds logical at first. Until you try it in real-life investing.

In real-life investing, at best you’ll get a return that is on par with that of the overall market. In that case, you shouldn’t worry about spending time researching and investing. Instead, you should just invest in an S&P 500 index fund and call it a day.

However, if you’re looking for above-average returns, you’ve got to think independently and go where the crowd refuses to go.

You see, more than 20 years of investing has taught me that you’ve got to be willing to consider areas of the economy and areas of the world that everyone considers to be a bad place to invest.

If the masses considered them to be a good place to invest, the great values would already be gone because everyone would be flocking there to invest.

You have to be contrarian because you have to beat the crowds to the next “big thing.”

For instance, my Ultimate Wealth Report portfolio is up just more than 11 percent since its inception a few short months ago. During the same time period, the S&P 500 is down just less than 1 percent.

Editor's Note: Join the 3.5% of Americans who are truly wealthy and financially secure.

What’s the difference? I’m investing in places where the sentiment couldn’t be worse. No one wants to go where I’m investing. However, I’m already profitable in the near term and I’m going to be wildly profitable in the long run. Why? Because I’ve beaten the crowds there.

As investors begin to finally see what I’m seeing, they’ll flock there and invest. But they’ll be giving my subscribers and me a better return because as they buy in, they’ll actually be pushing these stock prices higher.

Right now, I own a natural gas stock. Who in their right mind wants to go there? Don’t I know that natural gas just hit a historic low not long ago and was trading under $2 for a brief period?

I see it as it can only go up from here. And I know how market sentiment works. No one wants a natural gas stock now, but they’ll all want one when natural gas is back to $6, $8 or $10 per million metric British thermal units.

Another position that I’ve got is in an oil stock. Who wants an oil stock right now? Don’t I know that the global economy has been sluggish and China is slowing down and Europe is falling apart? Yet, I’ve gone where no one wants to go, and I’m profitable on my oil position.

Another example is my steel stock. I’m profitable on this pick within 30 days of owning it. No one wants steel because they all believe China controls what steel does since that’s where the growth is. And don’t I know that China just slowed down to 7.6 percent gross domestic product?

Yes, but I also know that my steel stock is up nonetheless.

How can this be? You see, it’s never a matter of “if things are bad.” It’s really “how is the stock priced relative to how bad it is?” That’s the real question to ask yourself.

As a quick example, four years ago, I bought a home. Why would I buy then? Didn’t I know the housing market was falling apart and it was a horrible time to buy? I noticed that the price of the home had been punished far greater than our housing market had gotten hit.

You see, the negative sentiment of the masses will drive prices down further than they should be and misprice the asset for a period of time. The same thing happens when things are good again. The sentiment is overly bullish and shoots prices higher than they should have gone and they’re mispriced once again.

The key is to learn how to tell when the asset is mispriced relative to the situation at hand.

I felt the house was way underpriced for what it should be selling for. So I bought it. Four years later, I sold it for a profit. It sold above my asking price and it sold within two days.

I’d found an underpriced house within a bad housing market. It didn’t matter that the housing market was bad. What mattered was what the price of that house was relative to how bad it was in the housing market at the time. The market had priced the house cheaper than it should have been given how things were going on around us in the market. So I seized that opportunity and profited as a result.

Well, that’s what I do in the Ultimate Wealth Report. I look for value where I believe a stock or an exchange-traded fund (ETF) has been mispriced by the market. I look where “things are bad” and where no one wants to go for pockets of value. I go where stocks are routinely mispriced due to the misjudgment of investors because of the bias of their negative sentiment.

This, my friend, is the key to getting above-average returns, whether you’re buying a stock, a house, etc.

I recently bought $20,000 worth of furniture for my new house for $4,000. I’ll be able to get my money back out of this depreciating asset because of how low I bought.

In the same way, I do this with assets that can actually appreciate in value: stocks and ETFs.

It just takes independent thinking that can’t be swayed by the news media or the market. You’ve got to be able to shut out the chatter, analyze an investment and make a judgment for yourself as to whether an asset is a great value or not.

The market is not always right. It routinely misprices financial assets all the time. It’s up to us as astute investors to find these misjudgments, which lead to mispricings by the market, and seize those opportunities. If you get to where you can see what others can’t see, you’ll receive a reward that others won’t receive: your account balances will grow, while theirs stagnate or recede.

About the Author: Sean Hyman
Sean Hyman is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He is also the editor of Ultimate Wealth Report. Discover more by Clicking Here Now.

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Monday, 16 July 2012 09:12 AM
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