Editor's note: Our essays from founder Porter Stansberry have taught us plenty about how to make money this week. Today, in a classic piece from 2015, Steve shares a few lessons he's picked up by watching how the wealthy invest. They think differently than the average person. But fortunately, you can easily follow their lead once you understand how they do it...
How do rich people continue to make money?
What do they do differently?
I recently asked two guys who would know – David Hall and Van Simmons.
David and Van are legends to me. These guys know what works in investing outside of the stock market. But their insights apply to stocks as well.
We talked about two distinct reasons rich people make money with investing. Today, I'm going to share part of that conversation with you...
David: They do their homework. And I've found that a lot of the real wealthy people are very much contrarians. Maybe it's the sense of self-confidence that helped them be successful in business or whatever they were successful in.
There's such a herd mentality... We had people [when gold was] at $1,900 screaming on the phone that they had to have their gold today, and where are these people [now]?
Steve: The phone's not ringing at $1,300, and the phone's ringing off the hook at $1,900.
David: Yes, at $1,900. I've found that wealthy people have the self-confidence to buy when there's blood in the street. Now it's not that bad. But, you know, when things are a little out of favor, and they're high-quality (in terms of both the quality, the condition, and in terms of their importance), that's the time that you want take a position.
Steve: That's exactly right.
Van: That's the hardest thing to do. For example, in 2010-2011, I called a couple of real estate friends of mine. I said, you know, I'm interested in buying real estate.
They go, "Oh, you're out of your mind." And I said, "OK, well, find me something."
I looked at one condo, which I bought, and I paid $160,000 for the condo on a short sale... Now the thing's worth about $300,000, $325,000. So it has doubled in the last four years, plus [I] collect 10% rent based on my investment.
It was really hard to get even friends of mine who are real estate guys interested. I'd say, "Well, what about building things? What about doing this?" And they're like, "You're insane. I wouldn't do this now. You're smarter than that." And I'm going, "OK, well if the guy selling real estate is a friend of yours and he's telling you not to do it, you're probably pretty close to the bottom."
According to David and Van, rich people...
- Do their homework. They understand their investments. And they...
- Avoid the herd mentality. They are good contrarians.
These ideas might seem simple. But they're harder to put to work than you might think.
Buying against the crowd is tough. From personal experience, I've learned that it's unsettling when you're the only one buying like Van was when he bought that condo. But that's often when you have the most upside potential. You have to trust your experience and your homework in those situations.
These are two ways that rich people continue to make money, for years and years.
If you want to continue making money like wealthy investors do, then follow David and Van's advice.
The rich often have a different mindset when it comes to wealth. But that doesn't mean you have to be rich to make money. It just takes cultivating two important things... Learn more here: The Biggest Lie: 'It Takes Money to Make Money.'
Contrarian investing is a great way to build wealth, and even beat the market. It's one of the key pillars of Steve's investing approach. But you also need to follow two more steps – including the most important one of all... Read more here.