Investors who are classified as High-Net-Worth Individuals (HNWI) generally have a sophisticated and advanced understanding of the economy and the factors that govern it, which is largely why they have succeeded to acquire the official status of being a High-Net-Worth Individual.
The world-renowned, billionaire investor Warren Buffet once famously said “be cautious whilst everybody is being greedy and be greedy whilst everybody is being cautious.” But what did he mean by this in terms of advocating investor strategy?
To understand this, we ask you a simple question and we give you two simple choices: When provides us the best opportunity within the economy to make the greatest profits? Is it a) when we are at the top of the market? Or b) when we are at the bottom of the market?
The clear and obvious strategy to make the strongest return value on any asset is to buy low and sell high. The best time to invest any asset is when the market is as far down as possible, when prices are low. Typically, the masses enter the market when news shows, TV programs and newspapers are flooded with positive press.
When prices are sitting high we are told that a market is performing great and many people are drawn into thinking that it is a good time to buy, where in fact, the opposite is the case. When markets are doing well, this is when we should show patience.
The abundance of positive news within a market is a signal where everybody is being greedy and buying at the top of the market, and as opposed to purchasing when the market is sitting high, this is the time when HNWI’s are cautious. When we buy at the top when a market is doing well, what is most likely to happen from there?
There is simply not much room for continued growth and the most likely scenario from there is that prices will stagnate and then fall. The fact is that we should wait for the storm to arrive before we invest. We wait for the negative news stories within the media, the panic meltdowns and following this, it is the recessionary periods that should entice HNWI’s to enter the markets.
Crucially, during times of economic downturn and periods of recession, the behavior of HNWI’s is to purchase tangible assets which will act as a hedge against economic downturn. This helps to avoid heavy losses that other markets are exposed to whilst putting wealth preservation to the heart of their strategies.