Getting Over the “Market Crash” Hurdle

The Silicon Valley Investors Club is excited to have Kristina Flathers join us to talk about how to get over a common mental block to investing: the “market crash” hurdle. Kristina Flathers, a resident of Chicago, is a former investment banker and current corporate strategist who invests in single-family rental properties in Indiana and California.

I have been investing in single-family rental housing for nearly a decade and own properties across two states. My real estate investments are an entrepreneurial outlet and a path toward financial freedom via consistent cash flows, equity growth, and debt paydown. As you can imagine, I spend a lot of my personal time looking to expand my portfolio and have purchased houses during both up and down markets.

Talking with your friends about investing in Real Estate

Naturally, when meeting new people or catching up with old friends, my investments are a frequent topic of conversation. This is not because I am begging to tell people, but when something plays a significant role in life, it is bound to come up. The ensuing discussion almost inevitably takes on the following structure:

Friend: “It is so cool that you invest in real estate.”

Me: “Thanks, have you ever thought about investing yourself?”

Friend: “Not yet, but I want to.”

Me: “What is holding you back?”

Friend: “I am waiting for the market to crash. Then I will start!”

Me: “Okay, well are you following the markets closely in the meantime?”

Friend: “Not really.”

Sound familiar?

Perhaps there are people in your life who express the same reservations about investing in stocks, real estate, or bitcoin – they are sitting on the sidelines waiting for the market to crash. Sometimes they mention the further justification of “saving money to make it big when the market does crash.”

Part of this response makes perfect sense. After all, it echoes one of the most basic rules of investing – buy low, sell high. However, in this case, it is simply an excuse for why people remain in their comfort zone. It is code for “investing is competitive and difficult, so I’d rather  not participate.”

Not to “burst your bubble” (pun intended), but I propose listening to one of Warren Buffett’s most famous pieces of investment advice: “get greedy when others are fearful.” In other words, get in when everybody else sits on the sidelines.

Why You Should Not Wait:

  • The world is a messy place, and investing is a messy business
    •  If you wait for the stars to align before investing, then you simply will never do so. Spoiler Alert: The market’s stars are never aligned.
  • Developing your investor toolkit requires action
    •  you never learn as much when you do not have skin in the game. Thinking back to my own experiences, I have never paid remotely the same attention to things that I did not care about, and investing even a small amount forced me to start caring and watching. I do not just mean an investment of money either, as it could be time, conversation space, or even a bet over beers with friends. 
  • Current participants will still be invested when the market crashes – only with more experience, access to capital, discipline, and know-how than you (see point #2). Those who succeed in “hard markets” will find it easy to succeed in “easy markets,” and there is little reason to think that any new entrant could outfox veteran investors without wasting time or money on a subpar deal. Everybody else not in the game already is doing the same thing as you – sitting with cash on the sidelines. You should not be surprised at the amount of capital chasing the same deals if / when you all decide to enter.
  • The market is impossible to time – we generally cannot identify the bottom until the market is rising again. Moreover, why would any of us think we could time the market more brilliantly or precisely than the next person?
  • You will never have perfect information – in fact, even when we have the same information, we almost always disagree on what it means.

For those in whom this waiting behavior is fully engrained, please allow me to offer some simple advice to ease your way into investing.

Related Article: How Investors Can Save Thousands by Following these 4 Simple Rules

My Simple Advice:

  1. Develop the skills and tools to succeed in any market by learning as much as you can. Follow your target industry actively by reading investor reports, building your own analysis / model templates, comparing deals, and talking to professionals and other investors. At some point, after many repetitions, you will develop an intuition for what questions to ask and the relative attractiveness of different investment opportunities. An easy place to start would be the Silicon Valley Investors Club and similar social media groups. For real estate, I recommend the Bigger Pockets community.
  2. Do your basic research before talking to someone. Since time is precious, investors and professionals get irritated when asked questions easily found through a Google search.
  3. After basic research, however, there is no such thing as a dumb question. Sometimes, the simplest questions of “how does your strategy actually work?” or “does that actually make money?” are the most important to ask, especially when something sounds too good to be true.
  4. Determine the minimum amount of information on which you would be okay with acting. Stick to that threshold. Do not develop analysis paralysis – as mentioned before, you will never have perfect information (and if you did, there would be no opportunity to make money through investing).
  5. Jump in! Take comfort in the knowledge that if you invest in a cash flowing asset, even if the market crashes, you will already have had months or even years of cash flow built up to take advantage of new opportunities.

Related Interviews: Ryan Lundquist | Sacramento Certified Residential Appraiser 

Recap:

Overall, I suggest investing consistently in all markets. In doing so, you will be creating the tools and discipline needed for when markets correct, all while building your nest egg. When the market is high, you often can apply strategies and use easy access to capital to develop relationships. When it is low, you can find undervalued deals, whereas the access to capital will be much more difficult to come by. Although there are advantages and disadvantages to both market conditions, those who invest during both the ups and downs build up tremendous amounts of capital.

Why wait? Just start, and what better time to start than the beginning of a new year?

Related Article: Rental Property Tip #3: How to Find a Quality Contractor

The content here is for informational purposes only, and should not be taken as investment advice. All views contained herein are my own and do not represent the views of any other organization. 

Silicon Valley Investors Club (SVIC) is a global community of STEM professionals interested in making smarter investment and career decisions.

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2 days ago

Hi all! Really appreciate all the great discussion on here. Most of my experience with investing has been with real estate, stock options, and 401K so I’m learning a lot! I’m looking to open a custodial brokerage account for my niece and nephew to gift stocks for holidays, birthdays, etc. Will probably focus on index funds and/or EFTs in growth industries. I would love any input you all may have on which brokerage accounts would be best suited for this and any thoughts you may have on which industries to look into. I don’t plan on doing much trading so this will be more for long term holds. Of course, any additional advice on this is greatly appreciated as well. THANK YOU!! 🙂 ... See MoreSee Less

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When I was young, I had an aunt who worked for Merrill Lynch and advised me to buy a few utility stocks with dividend reinvestment. As a kid, it was intriguing to see the dividends and see the growth over time. As an adult, I think low cost life strategy is simplest. Why not a little of both? For the actual brokerage, they are all the same, but I might suggest you pick one that you already use for your own investing or 401k that is invested in it he index fund approach, such as Fidelity or Schwab. (Normally I would push Vanguard, but since these are kids, they might get something out of visiting a brick and mortar store.) Last point. If they are old enough to have actual jobs, why not offer to match their savings rate if the commit to put the money into a Roth IRA? If you match $1 for $1, the trick is that they get to keep 100% of their paycheck, with you putting the money into the Roth on their behalf. You can do this up to the limit of your budget (ie, up to $100 per kid). This really helps them connect the idea of saving at an early age.

Vanguard is great for "set it and forget it" investments with good long term funds. If you want an actual brokerage, most are pretty similar. I like Schwab and Ally Invest, myself

I'd suggest looking into a 529 (college fund) plan through e.g. vanguard - you can choose how your investments are structured and there are tax advantages for the recipients (if the funds are used for education related expenses)

I’m on the receiving end of the stock gifts, but my grandpa likes Fidelity for both him and me as he says it’s very easy to transfer stock to me if we are at the same brokerage.

I have set up Schwab custodial accounts for all of my nephews and neice. Every birthday/holiday I get them stocks that correspond to their gifts (e.g. I get them snowboarding lessons and Vail stock). I'm using it as a tool to eventually teach them about stock and time value of investments but having it relate to the gift to help them make a tangible connection. My oldest nephew is 10 and he's already showing interest. One thing to be aware of (or to look more into) is that custodial accounts have to be reported as assets of the child when the kids apply for college & financial aid (or at least that's my understanding).

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4 days ago

Has anyone invested in “turnkey investment properties?” Sounds almost too good to be true but would love to hear what to watch out for or if what the catch is if there are any. Ty!! ... See MoreSee Less

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First one was a dud, and I'll be lucky to walk away without the loan. Didn't do my research well and was too trigger happy to buy something. Second one was doing well with a section 8 tenant, but decided to sell it and invest in a single state rather than two to avoid the overhead. I'm currently trying out the whole BRRRR thing that's popular now. More risk, more reward...

It’s way more competitive now, and all the good turnkey operators are sold out... for the most part you would be lucky to get $100 cash flow given all the expenses and almost annual turn costs... but it’s still a property that is being paid off and appreciating (in the right market). If yuu do the BRRR yourself yuu can save a lot of $, and also spend way more time and potentially make more mistakes...

By the way, having done turnkey, group investments, renovation projects, and stock investing, feel free to DM me about my opinions on real estate investing. Besides one BRRRR that I'm doing, I'm also leaning towards more hands off syndications as an LP for several reasons (more hands off being the main one).

4 days ago

Hi all! Does anyone have experience investing in SPACs? They seem to be all the rage and my cursory research suggests that they're often quite successful with sizable pops once the target company is announced. Are there any unique risks to consider or things to think through if planning an investment in a SPAC? ... See MoreSee Less

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Most of the NAVs are $9-11 for a SPAC, so if you buy it at $16 and investors don’t like the buyout candidate, it can tank 30-50% on you. The trick is to buy when they are under $12 to lower your risk, and buy the ones where you trust the managers. Chamath seems to have a good track record.

I’ve been having good luck with SPACs these past two months. As Aaron mentioned, if the SPAC for any reason falls apart before the merger, you can still sell your shares back for at minimum the NAV of $9-11, so there’s a floor and capped risk. Second, SPACs also have warrants, which are like LEAPs that are a strike ~$1-2, but are 1-to-1 with shares instead of options contracts of hundreds of shares. They offer a levered way at investing into an SPAC company. The risk there though is if the SPAC fails to find an acquisition target or merge then they expire worthless. I’ve only been going after SPACs with a set target and definitive agreement. I came across spactrack.net/ a while back which can help you find SPACs that are at a certain stage.

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