bostonbubble.com

[admin]

[john p]

I think the rules of thumb and axioms in buying equity in companies is different than buying a house. Now please don't go back and find like 50 of my posts that say otherwise....

I think Buffet isn't one of those volume traders that rides the bumps with quick trades (which is often the case when the market is stagnant), and I think that is the nature of what they mean when they say he doesn't "Time the Market". I guess that translates as he isn't a "real estate flipper".

I think he does "Time the Market" in the sense of getting into a a market segment that is set to grow and finding a company that has a competitive advantage. If the stars aren't aligned, it isn't good timing.

Time is a factor in investing, but Value is the most important. If some little old lady said she'd sell you her Honda Accord with 3,000 miles for $200, would you say no? Would you say, I only buy things for the long haul and I'm all set with cars. No, a good businessman would buy it, and then sell it on Craigslist or something.

If the theme is value and profit, time is a factor to consider but flexibility is important so that you can take advantage of the value or profit that comes in opportunities.

For example, in my MBA we did a case analysis where a developer was building bowling alleys (an old classic case). We had to decide whether he should buy, or lease a pin setting machine or hire pin boys to set them.... Basically, the analysis found that buying the pin setting machines made him more in the long run, but closed his top, or put him in such debt that he didn't have flexibility to get ANOTHER bowling alley project online. This course was called "Capital Structure" and it was basically about how you allocated your money such that you could take advantage of short, mid range, and long term opportunities and growth as well as absorb risk and keep operations well supported. Now, this bowling alley guy may be onto something and have tapped into a new business that is set to take off, but if he doesn't have capital, he can't take advantage of that opportunity. This is the type of thing that Buffet would buy because he would have the resources necessary to capture that opportunity. Now in time, that developer might build enough capital that they could be buying property and equipment cash and make more profit because he wouldn't have so much of his profit going to paying interest.

When GenXer talks about things, I think about someone who lives cheap for a long time and only puts their wealth in interest accruing investments versus buying something where you pay interest. In the long term, the positive interest would build and build and put the person in a position where they were ahead of the game. I just get a vibe that he is so hard core about it that he doesn't factor in quality of life very much.... The people I know who are very wealthy have their radar up all the time about any good opportunity because life is sometimes unpredictable.

[Boston ITer]

[john p]

So you're saying look at rent as an expense necessary to get a fat salary and buy a $90k house cash in a low cost of living area.

My father in law who lives in Richmond, VA is considering moving up to Massachusetts to be near us, but is showing me gorgeous places in Vermont with tons of land, beautiful views, and a kick ass garage where he can restore his old cars.... He's also an IT guy so I'm sure you'd get a long.

We watched the movie Bullet and drank White Lightning (moonshine) over Christmas Vacation. He'll get the IT Clubs for Skiing, beer drinking for breakfast, and snowmobiling club set up for you so the'll be in full swing when you retire to VT. You guys could start a hot air balloon riding company in Quechee. I went to Vegas with the guy an we couldn't find him and he was in the hot tub with a bunch of young kids cracking jokes.....

[Boston ITer]

John, I think you've got the right idea.

For the most part, the housing bubble distorted the concept of a housing market being directly tied to a region's local job market. Thus, no matter how beautiful Burlington on Champlain is, or for that matter, much of northern VT, at the peak, houses were over $300K with no large scale job market outside of the university, tourism, IBM, and the medical facilities. Now, prices are back in the 200s and possibly finding a bottom in the 180s

The Boston area, despite its NYC cousin experiencing a downward trending phenomena, has a case of Immunitis where no matter what, housing prices will remain stratospheric even if we don't have enough six figure jobs to support them. This is a type of collective delusion which will turn the place into a white collar rust belt as new industries re-emerge in Houston, Atlanta, & Denver and the world forgets about Massachusetts Bay.

Realize, former IT colleagues are buying places in Denver in the high 200s. And none of them are worried about whether or not they can make mortgage payments since the ratio to local rents are within acceptable means.

[GenXer]

[CL]

Just 2 thoughts

- Agree with GenXer it is almost impossible to correctly time the market precisely. Even for people who had timed it correctly, it's rather hard to prove statistically they are not simply lucky since the frequency of bet in timing market is so low.

- Agree with GenXer it's more important to look at own fundamentals (personal balance sheet) than market fundamentals.

- What I do not agree with GenXer is market fundamental is not relevant. I think timing the market is a very very rough guess and intrinsically hard, so instead of using it to time one pinpoint, I would use it as risk assessment tools (to time it to avoid one pinpoint). The goal is not to buy at the perfect time, but to avoid buying at the worst time.

[Kaidran]

I agree with CL. Thinking about a house as an investment is what caused us all these problems. The best we can hope for is avoiding buying at awful times (like now).

[mpr]

GenXer I think you have a strange understanding of how models work in the
real world and even in science. (I take all the bromides about buying
responsibly and within your limits as a given). Your argument seems to be that if you cant pin something down with statistics and models then you may as well give up.

A skilled user of a model will use it to illuminate their already existing understanding of events while keeping in mind its limitations. Anything which
is very clearly (and correctly) predicted by everyone's model is likely
to be obvious to everyone anyway and therefore likely to be in the market.
So the most interesting uses are those where you try to quantify some
qualitative scenario.

It may be hard to prove statistically that someone is not just lucky.
(Though there are some examples like Buffet, and I would argue Soros),
but just because you cant *prove* it statistically doesn't mean its not true -
there may be some evidence which points in that direction which stops short
of proof.

I guess you've written before, when pressed, that you would have no
object to someone buying at the height of the bubble as long as their
personal financial metrics allowed it. Well that seems to be nuts since
there were plenty of convincing arguments that there was a bubble,
even if one doesn't know how long it would last.

I mean you cant "prove" mathematically that anything other than hydrogen
(and maybe helium, I dont remember) exists ,
because the equations you get from quantum mechanics are too
complicated to solve. It seems to me that with
GenXer's point of view you would conclude that

1) Quantum mechanics is almost useless.

and

2) Its an open question as to whether heavier elements really exist.

[Kaidran]

Well, I think someone who made a good decision will usually consider himself clever, while someone that made a bad one will consider himself unlucky.

I think timing the absolute bottom is impossible but since it seems most people seem to expect lackluster gains once it does bottom I dont really see a rush.

[balor123]

[john p]

Jimi Hendrix got booed off the stage early on in his career when he used to open up for the Monkees.

Al Gore got a Platinum Award from the Green Building Council for his 10,000 square foot house that uses 20 times the electricity than the average american household.

Deval Patrick wrote a letter to a Parole Board to ask for the release of a grandmother rapist after admitting that he never met the man and because the man's writing seemed "sincere, and articulate".

If we are in an irrational market, does rationality help very much?

I would say that the overwhelming majority of rich people today did not earn the vast majority of their wealth, they got lucky or profitted on the efforts of others. Others saw what direction the herd was moving or got insight on where rules and regulations were headed and put their money in positions where wealth flowed to them.

For those wealthy that didn't inherit it, I think a majority used a significant amount of leverage at one point or another, and made an educated gamble, whether it was their money or someone they talked into giving them.

I met a guy who when was in his late 20's spent 1/3 the price of a house to buy an organ. Needless to say, the guy's wife was pissed beyond belief.

I think GenXer see's the world like the wife of the guy that bought the organ, and he wants people to be like the "Millionaire Next Door".

I've gotten tatooed by MPR before and it ain't pretty. Man when he brings out the Quantum Mechanics and "bromides" you know you're in for it.

What is funny is how he is a safe harbor and counselor for those that want to do short sales and pass their irresponsiblity on to responsible people and then torch a guy who is trying to be the voice of personal responsiblity.

The irresponsible are the new sacred cows and the eggheads are defending them even though they were missing in action during the bubble years.

[mpr]

[john p]

I guess I'm stuck on the notion that the building blocks of society are values.

[GenXer]