Why You Should Never Buy a Stock Because You Think It's Price Will Go Up

Let me tell you one of the greatest rags-to-riches stories of the 2010s. There was a child who didn’t have the best upbringing. His father passed away when he was 10 years old. When he was in

community college, his drug dealer jammed a pistol against his forehead, leaving him with a fractured skull and thousands of dollars in medical bills. Eventually, his mom kicked him out due

to his drug addiction.

Slowly, he rebuilt his life.

He entered drug rehab.

He got a job.

He married a beautiful actor.

And eventually he had enough money to become a real estate

investor.

But there was no reason for him to become successful at real estate. He didn’t study real estate investing in college. He didn’t have a mentor. He didn’t have any prior experience in the real

estate industry. He didn’t have a lot of money. He didn’t know how to negotiate loan terms with the banks.

But he always followed the same exact formula for deciding whether a potential investment was cheap enough. Rather than asking himself, “will the value of this investment appreciate over time?” he asked himself, “will this investment produce lots of cash flow relative to its purchase price?”

He followed that approach for every single real estate property.

He would approach one property and ask himself, “will this property produce lots of cash flow relative to its purchase price?” He would approach a second property and ask himself, “will

this property produce lots of cash flow relative to its purchase price?”

He would approach a third property and ask himself, “will this property produce lots of cash flow relative to its purchase price?” Each time he found a property that earned lots of cash flow

relative to its purchase price, he purchased it and held it for the long term.

By repeating that approach for over a decade, he was able to build an investment firm that manages more than $4 billion dollars in assets. Today, Grant Cardone is a real-estate celebrity

with more than 4.7 million followers on Instagram. And most importantly, his mother accepted him back into the family.

Cardone’s story illustrates an important lesson on investing: rather than making investment decisions based on price appreciation, make your investment decisions based on cash

flow. As Grant says, “I never invest for appreciation . . . [I] do it for the cash flow.”

Have you ever heard someone talk about “flipping real estate?” It’s when someone buys a piece of real estate to resell it at a higher price. Generally, it’s considered speculative because you

never know what will happen in the markets tomorrow.

Interest rates could go up.

Fewer people might want to own real estate.

Another town might become more popular

In fact, that’s how famous financial expert Dave Ramsey went bankrupt during 1988. He was buying real estate at a low price to resell it at a higher price. Initially, his speculations were profitable.

But one day, his properties didn’t go up in value. That left him unable to pay his debts, forcing him to declare bankruptcy. Conversely, investing in real estate involves buying a property for rental income or cash flow. The goal is to buy a property that will earn lots of rental income compared to its purchase price.

That’s how Grant Cardone became successful. He bought properties that earned lots of cash flow relative to their purchase price.

It turns out that the way you become successful in the financial markets is by investing rather than flipping. You can’t know whether any particular stock will be up or down tomorrow.

Interest rates could go up.

A disruptive technology could be released.

The banking system could collapse.

A pandemic might occur.

The economy might enter a recession.

Inflation might cause costs to spike.

A terrorist attack could happen.

So, you shouldn’t try to buy a stock because you think its stock price will go up. That would be speculative. What you should do instead is buy stocks for cash flow—just like you would when

buying real estate.

In fact, real life financial decisions aren’t made by asking, “can this or that be sold at a higher price?” Instead, they are made by asking yourself, “will this asset earn lots of cash flow?”

When a student decides to pursue a degree, they don’t focus on whether they’ll be able to sell a finance degree or an accounting degree for more. They focus on which degree will

help them earn the most income.

When a McDonald’s franchisee opens a new location, their primary concern isn’t whether they can resell their location to another franchisee. Instead, it’s how much profit their restaurant

will earn.

But here’s the interesting thing.

No one seems to take that smart, simple approach, the one we apply to so many financial decisions in our lives—whether it’s going to college, buying a house—with them when they go visit

the stock market.

People hit the stock market, and suddenly all their thinking is

driven by price appreciation.

People buy Nvidia stock because they think its stock price will go up.

People buy Tesla stock because they think its stock price will go up.

People buy Amazon stock because they think its stock price will go up.

People say, “I should invest in Apple at its 52-week low since its price is most likely to go up from here.” Or they say, “I shouldn’t invest in Amazon because it’s at its 52-week high, so

the price is unlikely to continue to go up.”

That’s called speculation, not investing.

Change your approach. Don’t ask yourself, “will [insert company name]’s stock price go up over the long term?” Instead, focus on profits. Ask yourself, “how much money does it cost to buy this company? How much in profits will this company earn relative to its purchase price?”