I guess we are learning from the last 4 years that the only certainty in investing is uncertainty.  In New Zealand and OZ we are a pretty resilient bunch and I am surprised, almost alarmed at the positive sentiment being expressed by many investors I talk to currently.  I say alarmed only because I know how much trouble I got into through a rapid unpredictable movement in the market and lending changes and I see many people potentially setting themselves up for a similar horror story right now.

I guess I don’t see an end to the worlds woes yet and so we have to assume that our own economy will remain at risk.

And if it is at risk then we must be conservative with our investing regardless of how gung ho we might feel.

You see the great depression created an entire generation of different people. More fiscally responsible, more averse to debt, more careful generally speaking.  Yet the current situation, which is just as bad, seems to be teaching most of us nothing much at all.  And that is scary don’t you think?

My investing rules and strategies are forever changed after the last 4 years.    Prior to the GFC my simplified paraphrased rules were:

Buy 20% below value and only gear to 80% of that purchase price

Use banks to create leverage to increase your wealth

Buy cash flow where you can but high capital growth property was the real key to success.

Use trading to create deposits to buy more houses

Stick to areas you know.

And there’s nothing inherently bad about those rules. I made a great deal of money out of them in a short space of time.

But the current crisis has taught me that you either need to recycle your risk in short time frames by being in and out of markets so you don’t remain exposed OR have different rules that keep you safer.

So now my main rules would be:

1.   Cashflow is King, every deal, even if it a trade must be significantly cash positive PRETAX.

2.  Buy mimimum 50% below replacement build cost.

3.  Only use non recourse lending or vendor finance.  If any other security than the asset is required then don’t take the deal.

4.  Get debt free as fast as you possibly can.

5.  Go where the deals are geographically. Get educated but don’t ignore a market because it is unknown or far away.  This limits my ability to achieve financial freedom

Now I’m not saying my new rules are “right” or “better”.  My sole point is I have changed a lot.  And yet I see so many investors starting to act like things are back to normal.

This frankly scares me for their sake.  Business as usual combined with some incredibly bad “luck” in a couple of areas pretty much wiped me out once.  That will never happen again because I have changed.

So what about you my friends, have you disaster proofed your investing rules yet?

Do it, do it now!!

If your vision doesn’t make you laugh, cry AND change, then it’s nothing ~ Dean

PS: The next Cashflow Tour is happening in October, check it out HERE