Court awareness (The Financial Athlete, #6)

Magic Johnson, my all-time favorite basketball player, was the most ‘complete player’ to ever play the game. One magical quality of his was his acute court awareness of the movement of all players on the court and how to leverage this to the L.A. Lakers’ advantage.

To succeed in investing, you need ‘court awareness’ too. This means keeping up with market trends, industry news and understanding gaps between current market prices vs. historical, long-term valuations. Lack of ‘court awareness’ can hurt financially.

Three years ago a hard-working gardener told me he was eager to buy a home. I urged him, “Wait a few years to buy a home for at least 20% less. Prices are too high compared to rental income from residential properties and the average income of workers in the local area. To restore a balance in home prices, either inflation will skyrocket or home prices are going to crash. High inflation is a remote possibility. So, I’m expecting a crash.”

The gardener gently argued back, “I knew I should’ve purchased a home last year, but I waited. Now prices are 10% higher. I don’t want to wait. If prices go up another 10%, I won’t be able to afford to buy a home.”

Within weeks the gardener purchased a home. The market price for that home is worth about 30% less today. I don’t know if the gardener still lives in the home or lost it to foreclosure, but it’s sad to see someone work so hard for money and then lose it due to financial ignorance.

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