… Or so a very famous investor once said. For anyone who’s been following the recent market turmoil, last week presented a great buying opportunity. Beating the Index has a great post up on why the market was in turmoil and what he sees ahead. It turns out that Chicken Little was wrong yet again, and the sky didn’t fall down after all.
Market timing and luck
I do not believe in market timing nor do I believe in luck as a supernatural force, but I do believe that there are opportunities that come and that luck is in part a function of taking action upon these opportunities. There was always the risk that Germany and the ECB could tell Greece to pull themselves up by their own bootstraps, but the order of the day seems to be that moral hazard is preferable to a collapsing line of dominoes.
The importance of liquidity
So, did I take my own advice and invest when it was “raining gold”, so to speak? Nope! Unfortunately, in order to capitalize on opportunities, one needs liquidity; one needs cash to be able to invest! My cash is currently all tied away for a downpayment fund. It would take too long to transfer this money into an investment account; the opportunity would already be gone.
I also prefer to buy and hold for a decent amount of time, and I wouldn’t be able to do that if I used part of my downpayment, since I need that money for the downpayment itself! In fact, I am currently in the process of liquidating most of my unregistered investments in order to use them toward the downpayment. I wouldn’t do that if I had the funds available to me, but we have made a lifestyle choice to purchase a home rather than continuing to rent.
I don’t feel too sorry about liquidating these investments since they are in bank indexed mutual funds, which still have a relatively high expense ratio which kills returns over the long haul, and I’ve had a good recovery with them over the last year. I will have to calculate and see what my overall return is, but I don’t think it is terrible.
So, what lessons have I learned? Liquidity is important. I don’t currently have any lines of credit other than a RRSP line of credit which I have never needed to use; I am now currently considering opening up a general line of credit so that I can capitalize on opportunities in the future. Consumer debt is to be avoided, but debt for investment purposes is not always bad. It is going underwater (a net worth less than $0) that is to be strongly avoided.
So, how about you? How have you been affected by the recent market turmoil? Did you also keep Warren Buffett’s old adage in mind? I’d like to hear about your stories. The fat lady hasn’t finished singing, and a new correction could ensue that will make me eat my words. 🙂