The "Grandma" Signal of Imminent Wealth Destruction

How to Spot A Good Wealth Destruction Opportunity

I was at church about a year ago, and started talking to some guy in the hall I barely knew. He’d just moved into the neighborhood, so I thought I’d reach out to help him feel welcome. 

He was going to school, studying metaphysics. What that was, I do not know, it was probably way over my head. 

I mentioned to him that I work for an investment bank.

“Oh, well what do you think of Bitcoin?”

This was the third time in the last week someone had asked me about Bitcoin. One was a bank teller. The other was the 19-year-old kid who rear-ended my car in traffic. Apparently he, too, owned some Bitcoin and was proud to tell me he had doubled his money within the last few months. Clearly, he was a financial golden child.

Anytime someone I’m just acquainted with learns I work in finance, these types of questions typically start flying.

“I heard the the Iraqi Dinar might start trading legally in US banks. What do you think of it as an investment?”

Iraqi Dinar? You can’t be serious.

Back in 2010-2011, it was gold. You couldn't have missed the endless commercials for companies offering to buy your gold from you. At the time, my dad called me and said he’d bought some gold coins after listening to the “Glenn Beck” show.

This was insanity. My father had never made an investment in his life until he was almost 50. What did he know about “investing” in gold?

I get really worried when I see this happening... people with basically no "investing" experience going "all in." It's times like this, when people who have been pummeled by the media about something, but who have no idea about finance and investments, start all of a sudden gaining lots of interest. They talk to you like they're the next Oracle of Omaha.

No one on the finance networks talk about Bitcoin anymore. After its parabolic move to $1000 and subsequent collapse to around $482 USD today, people still owning it are mostly ashamed. Nor do I see the headlines for companies wanting to buy my scrap gold, since its sitting about 60% off its all-time-high.

I take these things as a sign. 

What's the big thing right now? My retail bank recently started extolling the virtues of buying U.S. treasury bills, given that the dollar has been strengthening a lot lately. What's that a sign for? You guessed it. A weaker dollar sometime in the near future.

If Wall Street Loves It, You Should Hate It

Nothing gets attention from Wall Street or Main Street when it’s wallowing in death throes. It’s anathema. And if people working in finance, who should know better, think these investments are crap, imagine what people outside of finance, who know even less, think about these things.

Here’s a small lesson in price mechanics. Asset prices rise because people are buying a quantity of a finite object. The asset rises because people perceive it to be of high value. The converse is also true: if people think something is no longer a good investment, prices sputter and begin to collapse as people sell.

Don't get stuck standing when the music stops

If the buyers have all run out, who’s going to keep the game going? Who is going to prop up the prices? Who's going to keep the music playing?

No one. And that is why you don’t buy when everyone else is. There's no "greater fool" to keep the sham up.

Tons of “investors” fall for this trap. They fear missing out on the hype, or the “big move” that everyone is talking about, and fail to realize that that next “big move” is likely downward. The money’s already been made by the savvy investors, who are cashing out.

You don’t run out and buy gas for your automobile when you see gas prices are peaking. That’s a sure way to break your bank account. Nor do you buy a home when prices are at all-time highs, and authors are coming out of the woodworks selling books on how to flip homes, as was happening back in 2005-2007. If you do, you’re being taken advantage of. Don’t be the Bigger Fool.

You might be asking, "If it's a bad investment, then why would everyone be talking about it?"

The media pundits talk about what’s hot--what's run up in price recently--because it grabs attention, and it generates viewership. It fills in between the commercials. The talking heads yak only about what’s expensive, not what’s currently a good investment.

As investors, if you're getting in when everyone's talking about it, you're too late. We needed to be in the quality investments long before this time, when the prices of these assets are cheap, and investors, brokers, and Wall Street alike hate them with a fiery passion.

The Mindset at the Heart of Contrarian Investing

I’ve written a separate article about the necessity of buying at a good price. As we've written even if you have identified the greatest investment opportunities in the world, if the price and timing isn’t right, you aren’t going to make any money.

Be the contrarian, and you'll win in the long run

The contrarian investor buys assets at bargain prices when everyone else is turning their nose up at them. Once the alarm has gone off, and the building has cleared, savvy investors walk over to the corner and pick up the pile of cash sitting all by itself.

Just a warning: Investing in what everyone else hates or thinks is crap is painful, embarrassing, and its hard. You might get laughed at for doing it.

But we’ll be the ones laughing when we pay for our dream home with our investment gains, and retire, while everyone else is kicking themselves for listening to Trish Regan about what hot stock to buy—when really they were just buying Trish Regan. That's why the network hired her.

We’ll know we're on the right track to finding the next greatest investment, because mainstream investors, who are usually slow on the uptake and aren't involved in the financial industry at all (like your grandma), won’t be talking about it. And no one else will either.

Live long and invest,

Jeremiah