Tyler Matheson moderated a stocks versus real estate segment yesterday afternoon. Both the equity guy and the real estate guy said the all the right things about being diversified. The most constructive comment came from Tyler.
He said he knows plenty of people that have lost their shirts in the stock market but that he doesn't know anyone that lost their shirt investing in their house.
This was a great point. Not that I invented this line of thought, but people don't check the price of their house several times a day and sell it if it goes down in price in a month. The mind set is much different. Clearly some stocks need to go sooner than expected, that goes with the territory but how many times would you guess the average investor sells a stock too early or badly?
I don't know the answer but you get the idea.
Take a company like Wells Fargo (WFC), not a client holding just an example. Assuming no death blow news, is there any reason to ever get panicked out of this name? Despite a few corrections along the way it has consistently out performed its sector and it yields 3.2%. If you own a stock like this but you make a decision to reduce exposure across the board and you decide to sell it along with some other names, that would be a tactical decision not made out of panic.
Also if you by a stock for a specific reason and that reason does not take the stock where you expect it to, that might logically be a sell. Logically, not emotionally.
If the financial sector takes a hit and WFC goes down by a similar amount, is that a reason to get shaken out? Probably not.
I think everyone can get better at this. Knowing when and why to sell is important and difficult. This is a work in progress.
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5 comments:
Keep in mind that we have only begun this period of relatively low inflation. The Fed has been slowly grinding inflation out of the system since the early 80's. I think past inflation has skewed the general perception about real estate prices considerably.
Also, the ability to hold real estate through a pullback (same is true for stocks) is largely a function of leverage. The leverage in real estate (courtesy of Barry Ritholtz Big Picture) has never been higher.
I am pretty skeptical about history's relevence in real estate right now. Doesn't mean prices will go down but markets change over time and I cringe a bit when people make comments like Tyler's. History needs to be qualified by the current facts.
Interesting comment by Tyler. Made me think. What's the approach that most take when buying a house? A very long-term approach without a whole lot of thought given to price appreciation. Most look at the purchase of a house because it fits their needs. Their needs will most likely be similar to future purchasers needs as well. In the end, they hold the house long enough that they see price appreciation.
I wonder if individuals took the same exact approach, evaluating the company based on market positioning, would results improve? Warren Buffett takes this approach.... He seems to be doing okay.
Roger:
It seems to me that the S&L crisis of the late eighties was strongly tied to real estate prices. I also think that US history 101 is filled with real estarte booms that went bad, Florida in the twenties is certainly famous.
Also right now there are regions were the value of housing is below historical prices, parts of the midwest like a lot of ND and a number of old urban centers. California got hit moderately hard in the early nineties.
There are a huge number of examples where real estate got hit and hit hard.
This may not matter to the individual in for the long run who is paying a reasonable percentage of income. This is probably most of the geographic area of the country.
But in the hotspots people are heavily leveraged by historical standards, relative to incomes prices are at a record. No down payments, interest only, some negative interest, balloon payments at the end of 3 years, adjustable rates... the creative loaning is essentially money printing and it makes up well over half the loans in some areas. With many peole paying well over traditional percentages of income to meet these buy now pay later loans.
And when somebody says "you never lose money on..." it's a bad sign.
All great comments. For what its worth I think htat some of the speculators are bound to get hurt. I can not reconcile my thoughts on how deep a shake out might be or when it might come.
I will say too much leverage is always dangerous nd these days there is clearly a lot of extended folks out there.
Roger-I am having the same dilemma with my oil holdings,,when to sell?? I have watched them drop for a week now...am getting anxious, but I keep hearing from Craner that nobody ever made money panicking, yet everyday my oils (ECA, VLO, BR, RIG, UPL-about 25% of my portfolio-up big on ECA, and up little on RIG and BR)drop.
Thoughts....and to say again, I religiously read your blog, along with Stephen Vita's blog daily....brilliant stuff...keep it up.
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