Saturday, November 6, 2010

Where Buying High and Selling Low are the Norms

Hint: it isn’t the stock market or real estate, but could be. It’s our stuff—the very things we feather our nests with.

How do we know we buy high and sell low? Look at the retail value of new items in stores vs. old items at yard sales, garage sales, or E-bay, or worse--things getting tossed out.

Buying high and selling low is called “depreciation,” and it occurs in all things that don’t hold their value, and were never designed to. This depreciation is your lump-sum loss for a questionable buying decision.

The trick to maneuvering in today’s economy is to avoid those lump-sum losses, and buy low the first time around. Buy low and sell lower, or perhaps at break-even or better. This minimizes your losses and may increase your profits when done correctly.

A lucky few get to write off some of their depreciation losses in the form of business expenses for vehicles, equipment, and rental real estate. Believe me, though, it’s more hassle than you think going through the process just to get that write-off.

Just like the stock market, we’re led to make new purchases with hype in many forms—print ads and other media, clever product placement, looking over the Jones' fence, word on the street, and even from the schoolyard. Responding to this hype leads us to buy at precisely the wrong time—when prices are high (even with so-called ads and discounts). After all the hype, sheen, and polish is worn off, then comes time to take our lumps at the disposal—the yard sale, garage sale, consignment sale, or E-bay. Like the stock market, the time to sell is when demand has waned, but too many of us don’t recognize the wane pattern until it’s too late. We end up holding on too long, and the item becomes a white elephant to us (and everybody else). As we know, white elephants go for pennies on the dollar…your hard-earned dollar, that is!

A tip from the stock market: don’t buy into the trend, because the trend will end. Stocks, like furniture and other “nest liners,” must be carefully thought out, researched, and bought based on solid evidence of quality and the possibility of increasing in or holding value. As they say in the clothing trade: the classics never go out of style. They don’t make classics any more, so choose carefully and wisely before bringing things home to the nest.

If you’re going to have losses, have a plan for dealing with them—or have the plan BEFORE making the purchase. Let the tax code be your guide.


Post a Comment