The all-time greatest investors made their money by focusing on one strategy.
It might seem painfully simple. But putting it into action – and being successful – well... that's another story.
It's how Benjamin Graham, the father of value investing, made 20% per year from 1936 to 1956.
It's how Warren Buffett has succeeded for more than 50 years... becoming one of the richest people of all time with a net worth of more than $100 billion.
These Wall Street legends all did the same thing... They bought good assets at great prices.
What most investors miss about this is why assets become cheap in the first place.
It's a factor that most folks can only see in hindsight. Today, I'll share it with you. And I'll share one part of the market where it's creating a massive opportunity...
Buy good stuff, and buy it cheap. If you do that as an investor, you're nearly guaranteed to succeed. But while it's easy to think through, it's tough to execute.
That's because when good stuff gets cheap, the world is usually falling apart. And that makes acting on those opportunities more difficult.
More important, good value is a side effect of something bigger – something that's fundamental to the core of all markets...
It's about fear and misperception.
Consider what happened to the housing market in 2008. A record 2.3 million foreclosures took place that year. Widespread panic was pulsing through the housing market. And it crushed any stocks related to real estate.
Fear was no longer in the back of investors' minds. It was the only thing on their minds.
The idea of "losses forever" took over. And the perception was that things would get much worse.
More people lost their homes as the months went on. By early 2009, no one believed real estate investments could turn around. Take a look at this headline from the Wall Street Journal on March 9, 2009...
If you know your market history, you'll notice something right away... This headline ran on the exact day the stock market bottomed.
Homebuilder stocks in particular went on to soar 100% in less than six months. And it was the start of a decadelong bull run... one that ultimately soared to 454% gains.
Here's the key, though... The bad news wasn't over by then. Far from it.
Foreclosures continued after March 2009. In fact, 2009 would top 2008 for the number of foreclosures. So when folks assumed that things would get much worse, they turned out to be absolutely right.
But prices don't have to keep falling just because things are sure to get worse. It's actually the opposite.
Real estate stocks were cheap in March 2009 because the news was bad. The expectation for more pain had created incredible value. At a certain point, the worst was already priced in. And stocks began to rally... even though the situation remained bleak.
This is what creates the opportunity to buy at great prices. You need investor perception to turn sour enough that all anyone can see is more losses ahead... and investors decide that no price is worth paying for a particular kind of stock. Then, prices fall until they are cheap enough to attract interest.
That's the moment the investing "greats" are waiting for. We want to act when the bad news stops mattering just enough for an uptrend to start.
Today, we're seeing that same kind of misperception in the housing market.
Financial news headlines everywhere are blaring, "The housing bubble is bursting." For example, check out this headline from Fortune magazine back in November...
Or this one from the New York Times...
What these headlines won't tell you is that inflation is easing and mortgage rates are starting to drop.
Are 6.3% mortgage rates terrible compared with the sub-3% rates we had in 2021? Absolutely. But they're less terrible than 7%-plus. And most important, the trend is finally working in our favor.
The situation hasn't entirely turned around yet. We may still see home prices drop a little bit from here. But remember, more bad news doesn't have to mean housing stocks will fall further.
Investors assume that a housing bust is underway... and that housing stocks are dead money. That's a major misperception. And it's exactly what has set the stage for a new rally in this sector...
The long-term tailwinds remain strong. These tough times are creating the kind of opportunity the investing greats look for. Don't let it pass you by.
Good investing,
Brett Eversole
Further Reading
"The slowdown in housing has reached a rare level," Brett says. We can see this in one important housing measure. This index plummeted recently – but similar moves have signaled great times to put money to work in real estate... Learn more here.
Investors have been bailing out of homebuilder stocks. Sentiment just fell to decade-plus lows. The short-term narrative is all anyone can see in housing. But those fears are missing one important tailwind... Read more here.
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