The Economic Opportunities of Opposites

Sometimes it pays to ignore what everyone else is doing.

economics road sign
economics road sign

This past fall everyone was talking about recession (they kind of still are). Yet if you panicked and pulled your money out of the market over what you read in the news, you missed out on significant stock gains.

During the run up in housing prices in the early 2000s, the consensus was to get into housing using whatever loan product necessary. If you bought rather than rented during the housing bubble, you likely ended up over extended and upside down when home values plummeted. Then, if you sold or walked away like many had to you likely lost out on the gains as prices rebounded several years later.

It’s easy to get swept with what everyone else is doing. Doing the opposite is hard because it requires extreme discipline, and separating emotion from money. That’s extremely difficult to do.

So how can you t? Stop trying to get complicated — strive to be boring and simple in your financial life. Unless you’re a hedge fund manager, stop trying to time the market (and even then studies often find you would fare worse). Follow the simple strategy of maxing out your 401k, pick low cost index funds employing dollar cost averaging, and invest for the long term. When it comes to major home purchases or remodels, if the market demand for a certain service seems really high and you have the ability to postpone your project, wait until the off season or even for a few years if necessary.

Question everything. Does it make more sense to rent or buy? Run the calculations and be willing to listen to what they say. Think about opportunity costs, or the trade offs and limitations of something like home ownership as much as you consider the benefits.

Don’t stress over the financial media — they are rarely right and by the time they are the easy money is gone. People rarely profit on widespread trends. Instead they end up trailing the market — so better to instead focus on fundamentals and stick to your strategy.

And every time you’re about to make a major financial decision stop and ask yourself, what is every body else doing? It’s a good way to engage the rational part of your brain and pull back from the brink of the herd mentality.

Embrace the economic opportunities of opposites — stress less, and do better. Save the risk taking for fast fashion — I’m looking at you scrunchies.

I write about economics, technology and media. My views are my own.

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