What does the Greece story tell investors?

A dreadful tale unfortunately, but one with its own lessons, not just for the Greeks but for investors as well.  How can that be?

As reported by numerous sources over the last month including Reuters (http://uk.reuters.com/article/2011/06/01/uk-eurozone-greece-privatisation-idUKTRE7501WU20110601), as part of the bailout agreement, a privatization agency will be formed, independently from the Greek government, in order to oversee the sale of state assets to potential buyers.

Apart from the political issues, or whether you agree with what has happened, it raised an important issue for investors, particularly prospective ones.  How do you buy and when do you sell?

There is no doubt there is great value in Greek state assets, which will be sold most likely for under market value; a great deal for those large institutions who will invest.  But what it shows is part of the age old investment strategy of “buy low, sell high”, and more importantly why it happens.

The Greeks are in trouble, therefore they have apparently no choice but to sell good quality assets at knock down prices, as they are not in a position of power.; they need to repay their debts.  Compare that to say, the Chinese, who are booming, and would not sell state assets because there is no need to, and certainly not at a discount.

If you are looking at investing into a certain area, be it gold, property, stamps, silver, shares, etc, one of the main criteria to ask yourself is: is their value to be gained?  Or why is this being sold?

In order to get value on an investment proposition, there is quite often some problem lurking, or an urgency to sell, or a sudden drop in price.  An example would be the homeowner who has got himself into too much debt, and needs to sell his property quickly to repay.  If he was not in debt, he would not need to sell.  This is typical discount investing, much of which is happening today.  You may think this is harsh, but it is reality.

Interestingly, if one looks at this the other way now, how many people invest when the market is booming?  The property investment boom, from 2004-8, was one such cycle.  Unfortunately due to bank lending restrictions, many got burnt, but it is widely recognized that the value had been lost as properties were sold for higher prices than the banks were going to value them at.  As another old saying goes, if the man cleaning your shoes tells you to invest, it is probably time to get out.

In summary then, the unfortunate Greece story is an opportunity for large investors to buy up at value.  Whether you like it or not, it is a lesson to be taken for any type of investment.  Try to buy low, and sell high.