Many investors invest in something, for example, real estate. And let’s say that prices rise dramatically due to some reason or reasons. The market is “hot” and your property has increased in value so much and you could sell now and walk away with a boatload of cash.
Or do you you want to keep holding on and keep squeezing a bit more? Because you fear that price may still keep going up and you will miss out big time if you sell too early?
When is the right time to get out of an investment?
If you invest in something, and the prices skyrocket very quickly for whatever reason and you know if you sold, you would make a ton of money.
Should you sell? Or do you think the price will continue to go up and you want to keep holding on?
I’ve witnessed two occasions that taught me a thing or two about investing in general:
- The first is a story of a mining town that was so expensive to buy a property and even rent, which all came tumbling down when mining down turn hit.
- The second story is the story about the meteoric rise of bitcoin price and how it came tumbling down quickly as it rose.
I don’t own any real estate investment property yet. I only own a two story 3 bedroom house which I have paid 100% cash for it.
I hate the idea of getting a mortgage. I have no intention of renting it out, or selling it. It is my place called home. So if everything turns to shit, I have a place to go to where I don’t have to pay any Tom, Dick And Harry rent (that’s money out of my pocket to theirs!).
The similarity and the way that things turned out before and after strikes home an important lesson which I’m going to share in this article.
1: Real Estate Boom & Bust (A Story Of A Mining Town)
In 2011/13 period, I was working in a coal mine somewhere in Queensland, Australia and there was this Coal Mining Town called Moranbah not far off from the mine where I was working.
Mining was booming. Coal Prices were good.
People were making a lot of money in mining jobs or from real estate, from renting to buying.
It was a crazy time:
- In mid-2011, Moranbah’s median price was $750,000.
- In 2015, this plummeted to $180,000 as the mining boom came to an abrupt halt.
At one point in 2012, I wanted to rent a house in Moranbah and was searching for properties to rent.
I was shocked!
The minimum rent per week was $1500 per week. This was the lowest rent per week I could find.
I’m not joking!
It was way too expensive!
I could not believe my eyes!
So I ended up finding another property in a nearby town not far from off from Moranbah.
I was living in this ugly looking old shack which was costing me $430 a week. That was the only one I can find around that area where the rent was affordable in my situation.
Some time later, I happened to pick up a local newspaper and was reading and saw this news about an investor who just bought a real estate property in Moranbah for more than $1 million Australian dollars.
I remember reading the article and how the writer was saying that this was the highest price ever paid for for a property in Moranbah. The article said that:
- property prices are increasing and investors are now flocking into Moranbah and grabbing up properties.
- this is the right time to get into real estate…now is the time to buy your real estate investment property in Moranbah.
- the coal prices were good,
- mining companies were making heaps of money and they were also paying heaps of money to employees and money trickled down to other businesses around those areas where the mines were, including properties.
The writer of the article was right to an extent: price of coal was good and as long as it stayed in that level and there was still huge demand for it in Asia, real estate market would be getting hotter still in that area.
But exactly 3 months later, the price of coal took a nose dive and it has never really recovered yet to those high levels in reached in 2012.
Downturn hit that town hard…many people lost their jobs in their mines. People left town. There were lots of empty houses…no renters.
House prices dropped. Rentals dropped.
Those same houses that were charging $1500 per week were renting out at around $150 in $2015/2016 the last time I checked.
I remembered thinking and saying to myself: Wow! What A Mess!
Those houses that were being sold for $350,000 dollars were now selling for under $150,000.
It was ugly. Here’s one of the unfortunate stories that made the news:
2: The Meteoric Rise Of Bitcoin And Its Fall
The similar story happened with bitcoin.
I heard and read about bitcoin in around 2013/2014 when the price was a few hundred dollars.
Bitcoin just didn’t make sense to me so I never really paid much attention to it at all until around October 2017 when it was trading at around $6000 and that’s when the excitement really began and I begin keeping track of Bitcoin prices and news.
Everyday, these were happening:
- News outlets were talking about it: it was on TV, it was in the newspapers.
- Stories in TV and in news were talking of People who invested or bought bitcoins in the early days when the price of bitcoin was just under $10 and now they are multi-millionaires. They also told of unfortunate people who would have been millionaires have they not lost their bitcons for whatever reason.
- Almost every website that involved trading and investing talked about bitcoin.
It was like a never ending hype.
Some analysts were saying the price of bitcoin will reach upward of $100,000.
The more it got mentioned in the public domain, the more hype it created, more investors jumped in and pushed the price up.
Call it bitcoin mania!
All the mama’s and papa investors that were standing on the side undecided jumped in. There was too much hype about bitcoin. Its the next big thing after internet, that’s what some said.
The following next 2 months, Nov and Dec, the price of bitcoin rose up to and hit a high of nearly US$20,000 in 17th December.
It was the very same day, that the price of bitcoin started falling. It fell for the next 5 days, straight down. Price rallied up a bit after that but it never fully recovered and it been heading down ever since.
At the moment of this writing, the price of bitcoin is around US$6,900:
When bitcoin price starting shooting up, I again saw the similarity between the price rise of bitcoin to the the property prices in that mining town mentioned above.
I never expected that the price of bitcoin will take a tumble after 3 months…but it did!
I was left with my mouth hanging open because I could not believe what happened…the similarity was so astounding.
I remember reading something maybe a book or magazine or an article online, somewhere ,a long time ago, that gave a little bit of advice about investing. Here’s what it said: When Everyone Is Getting In, Its Time To Get Out
For any investor who happened to invest in bitcoin or in real estate and took heed of this advice, they would have bailed out at the right time.
When Is The Right Time To Get Out Of An Investment?
Here are some things about investing that we all should take note of:
- When everybody is getting in, get out!
- When there is too much hype about something and there’s a frenzy about it, get out!
- when you turn on the TV and you see a lot more talk/hype about something, get out!
- when you read the newspaper and the subject starts dominating the headlines almost every day, get out!
- when your neighbors and circle of friends who really don’t have a clue about investing start talking and telling stories about it, or wanting to get involved with it, then its time to get out!
The two case stories are from completely different industries but the the behavior and the outcome is the same.
Those smart investors that bailed out before bitcoin took a nose dive or when the real estate bubble broke are smiling today.
You will never know the exact time and date to get out but know this: when everyone is acting like sharks in a feeding frenzy, its time to get out.