When a stock is in the midst of an aggressive run, it is common knowledge not to chase the price. “My order didn’t fill at $2.00, maybe I should try for $2.05…now those are gone! Better try at $2.10…” Never a good idea! Assuming the goal of the trade is to actually make money, you’ll want to let the hype pass, look for a reasonable new foundation, and purchase where there is less risk of decline. In other words, the passage of time gives you a picture of an item’s true value and you’ll have a better chance of selling without a loss (or actually making money) when you’re done enjoying the item yourself and ready to give it to someone else. Some more tangible examples:
Collectibles…Don’t Chase! The Vince Carter rookie card discussed on this site is a good case study. As mentioned on that page, a price guide near the time of its release lists a value of $800. The player’s career was beginning, there was a lot of attention on him, others were searching for the card…sounds a lot like the rising stock above. But time passed and although there are only 3,500 cards, it seems that a handful are always for sale. Today, there is no way an $800 price will be realized (unless it is one of the rarest BGS 10 graded cards). The passage of time has revealed a new floor at about $100 where collectors can purchase with low risk. They can buy now, enjoy, and sell later with much less risk of losing money. In fact, if recent trends hold, they are gaining on the investment with each year that passes.
Cars…Don’t Chase! At this point you may be saying, “Not everything is meant to be resold for a profit. We expect everyday cars, apart from collectibles and antiques, to depreciate.” But one should still consider the final dollar amount of the loss and not chase the most hyped, marketed, and newest vehicles.
I recall a recent conversation with someone excited about the purchase of their new car. I had recently purchased a five year old entry-level luxury sedan with only 20,000 miles. Seeing their excitement about their purchase, I tried to make small talk and learned that their vehicle had a lesser quality engine. I asked, “Being new, I bet you have a lot of neat features with the latest technology.” Their new car had none. Not wanting to make them feel bad, I figured they could easily win on fuel mileage, “I bet it gets good mileage…” Nope, a bit short on that too. But, they insisted, the car was new. In another five years, I know my depreciation will be less than $10k while theirs will probably be over $20k…and my car had the lower sticker price, the stronger engine, the most features….
Everything…Don’t Chase! And now you’re saying, “But some things are never bought and sold at all, and I want the best!” My internet service provides me with a 100 Mbps connection at just under $50/month. The neighborhood still doesn’t have fiber optic options. I know I could negotiate the price down a bit more, but what I want to discuss are the neighbors who immediately upgrade to the 400 Mbps connection because they want the best. $25/month more…$300/year. I still watch all the videos I want, trade stocks, never had a problem or delay yet. I wonder if those neighbors have checked if their network hardware can even support the higher speed. Either way, I have an extra $300/year to attempt to invest for passive income.
In Short: The first article in this section of the site on trying to become rich concerns prioritizing passive income. There is nothing wrong with wanting to pay more for the best, or to indulge in an illogical want. But if you are still at a level where your passive income cannot support your current lifestyle (and if you’re like most people, you’re passive income doesn’t even pay the phone bill at this point) you probably need to stop chasing in many ways.