Is investing risky?
Maybe. The less you understand the investment, the riskier it is. Knowledge is the antidote to blind risk.
Unfortunately, many people write off investing altogether. They assume all investing is dangerous, and they don’t realize they can lower their risk by developing a strict set of criteria that guides their investing choices.
This notion – investing is risky, so I should avoid it – is one of five “MythUnderstandings” (myths + misunderstandings) that author Gary Keller, the founder of Keller Williams, describes in his book, The Millionaire Real Estate Investor.
Other MythUnderstandings?
Myth #1: Investing is Complicated
Truth: Investing is only as complicated as you make it. The more you learn about it, the less complex it seems.
To a kindergartener, fractions seem impossible. But they grasp numbers through increasingly complex stages – counting, adding, subtracting – until they’re ready for fractions.
Investing, Keller says, is the same. Jump straight into the advanced topics and you’ll quickly feel overwhelmed. Focus your time, learn the concepts that apply to your goals (and dismiss the ones that don’t), and you’ll be solid.
Myth #2: The Best Investments Demand Specialized Knowledge
Truth: The Best Investments Are in Whatever Arenas You Understand Most
There is no “best” industry to invest in. It doesn’t matter how great the past returns have been in widget-making. If you don’t understand widgets, avoid it. Stick to what you know.
Myth #3: Investing is Risky
Truth: Investing Isn’t Risky if You Buy Right
You win or lose the game when you buy, Keller says. Investing isn’t risky if you buy such a steal that there’s nearly no way you could lose.
Risk happens when you over-pay for an investment and then pray that the market will save you from your mistake.
Myth #4: Great Investors Time the Market
Truth: Great Investors Make the Best of All Times
If you’re constantly in the game, you’ll spot the hot deals. But those deals won’t tap you on the shoulder – you have to constantly be searching.
“It doesn’t matter what the market’s doing,” says Bill O’Kane, an investor interviewed in the book. “You’re going to buy what the market gives you.”
Myth #5: All the Good Investments Are Taken
Truth: Every Market, in Every Time, Has Opportunity
“Rest assured, all the good investments will be taken,” Keller says. “The only question is by whom … those who take them are those who best understand the conditions that create them.”
Should I Read It?
The first half of The Millionaire Real Estate Investor reads like a motivational book. Keller explains the path of money (turning capital into cash flow) and walks through ideas like the “Three D’s:” investments that are tax deductible, depreciable and deferrable.
The concepts he explains in the first half apply to all types of investing, not just real estate, and the tone feels a little bit like Rich Dad, Poor Dad.
The second half of the book more specifically focuses on real estate investing. He offers worksheets and “sample problems” that guide you through learning how to analyze a house, either for rental income or flipping potential.
This Book is For You If: You’re looking for a broad, conceptual overview about how to think about money and investing. You’re a real estate novice who wants to learn more. (I certainly consider myself a novice, even after a handful of rentals).
This Book is NOT For You If: You’re an advanced real estate investor.
Check out more reviews of The Millionaire Real Estate Investor.
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I would argue that “Myth #2″ is not in fact a myth. The best speculations really do require specialized knowledge. Someone with layman knowledge has no hope of matching the combination of consistency and return that something like merger arbitrage, yield curve convexity trading, or equities pairs trading offers.
I’m suspicious of “Myth #4″ as well. With the Case-Shiller index 33% off the 2006 highs, lots of people who got pretty good deals relative to other properties that sold at the same time are in fact under water simply because they bought at the wrong time.
Analysing a property, for me, is a huge reason to buy this book. It seems that even if you don’t plan on buying more than the house you’re going to live in, this would be worth the money as “insurance” that you aren’t pricing yourself too high.
Really comprehensive overview. Before committing yourself to a huge investment, it’s crucial to ‘know what you’re getting into!” This is a good place to start!