Feeling dumb and poor as the market goes up?!

[Nords]

I don't own equities but I don't care if others do. I don't mind if the equity hawks like to downplay the attractiveness of real estate and hype the (mostly theoretical) returns available from stocks.
I don't need the competition. My temperament is not well suited to equities. My real estate activities have always been more productive for me. I marvel at the machinery in place to convince the average Joe that ownership of equities is the only hope they have for a solvent retirement. I don't believe it though . . . . and I have this persistent niggling feeling that in the time frame of the boomers retirements, that equities are going to be a major dissappointment. I like the idea that real estate has real value and utility no matter what happens to the capital markets.
I hope that equities perform well, but good or ill, the gyrations of the equities markets are for me just a matter of passing interest.

I think it should be acknowledged that some people are more comfortable with stocks and others are more comfortable with real estate. I think it's certainly better to focus on why RE works for you-- and less on why stocks shouldn't work for the rest of the world. Just because stocks don't work for some people is no reason that they should work for others-- or won't. And just because RE works for someone is no reason that it should work for everyone. Your fears over boomer retirement vs the equity markets are no more rational (or irrational) than others' fears over the overbuilt & overhyped RE markets.

How it's said makes all the difference. In your quoted paragraph, try replacing "equities" with "gold" or "beaver ch33ze futures" or "real estate" and see if you're objectively analyzing an asset class or just using pejorative terms to try to lessen its credibility. While you marvel at equity-marketing machinery, I marvel at the companies marketing NNN leases with TIC ownership boosted through 1035 exchanges. I wish more of them were publicly traded because I'm sure that their stocks would be zooming on the hype.

RE is an asset, and so are corporations who own hard assets (even RE) or cash flows. Those assets can be held in good places or in bad places, and they'll all go through periods of undervaluation, downright fear, and irrational exuberance. I suspect that their value over time will largely go up.

I think that I understand stocks and I understand real estate, and I choose to own both. I haven't done much work on gold or beaver ch33se futures or options, so I don't think that I'm ready to compete for my future in those arenas... especially when the surf's up. What doesn't make much sense to me is avoiding an asset class just because it's populated by hucksters... and then casting aspersions on those who do own it.

 

[kcowan]

... What doesn't make much sense to me is avoiding an asset class just because it's populated by hucksters... and then casting aspersions on those who do own it.

I think it is an indication of uncertainty in the choices being made. I have experienced it in other areas such as where I live and whether I am married with children. People often need to undermine the reasons why I made the choices that I did in order to reinforce their own different choices. It takes a high degree of confidence in one's own direction to be able to accept that other's choices make sense for them when they are dramatically different.

I have known many people who are comfortable with real estate because it seems more tangible to them than stocks. In some of my small cap holdings, I have visited the company and talked to the CEO and his team. This makes the investment more tangible to me. But it also makes me less objective about the holding.

So recognizing this lack of objectivity, I can relate to others who also display lack of objectivity about other classes of investment. It is helpful to review this definition of huckster:

A huckster is a seller of small articles, usually of cheap or shoddy quality, or one engaged in haggling or making petty bargains, that is, a certain type of peddler or hawker.

to gain a better appreciation of the thinking of the person that uses it. This is not intended as a slight against any of our fellow posters here but simply an attempt to understand the causes of certain human behaviour.

 

[FinanceDude]

Did you mean 1031?

Oops.....my bad.............

 

[HFWR]

The "1035" is a proprietary maneuver available only to clients of snake oil salesmen financial planners...

 

[FinanceDude]

The "1035" is a proprietary maneuver available only to clients of snake oil salesmen financial planners...

Really? I know for a fact that Vanguard annuities accept 1035 exchanges from most providers, so your point is

Yes, Vanguard sells annuities......funny how noone wants to comment on that on here.................

 

[hellbender]

I think it should be acknowledged that some people are more comfortable with stocks and others are more comfortable with real estate.

Ya think?

What doesn't make much sense to me is avoiding an asset class just because it's populated by hucksters... and then casting aspersions on those who do own it.

To me either. You assume facts not in evidence. Obviously, the field of real estate has its share of hucksters as well. I am sure you know this since you seem (as indicated above) to have a firm grasp on the obvious. I do not own equities but for other reasons, including my personal belief that the returns do not justify the risks.

Now let's talk about the aspersions: In my very first thread on this forum, someone asked me if I was related to John Galt. I didn't respond to the poster since I had no idea what he/she was talking about or who John Galt was. I figured it was some kind of insider joke and let it go. I now understand that the joke was on me since it appears that John Galt is some kind of despised character with a checkered past here. This comparison was drawn apparently solely on the basis of the fact that I didn't own equities. Nice.

Shortly thereafter in another poster called me "out of line" and "obnoxious" for suggesting that others would be well-advised to follow a zero-equities investing approach. Of course, I made no such such suggestion. The poster later apologized.

So you will have to excuse me if I question your advice to discuss why real estate works for me. In addition to being thin-skinned, this board seems to be a bit close-minded (if not positively inbred) when it comes to the choice of investment vehicles. I don't know John Galt, but I am coming to appreciate what he was up against.

 

[mathjak107]

to some extent i agree with you, there are far to many on the board who believe their way is the only correct way. products that may carry a sales load are shunned without knowing the entire story , any funds that arent index funds are no good and investment products that arent fully understood are shot down not even based on fact.

but overall the board is a wealth of knowledge and experience and has some very nice people. it all goes with the territory.

 

[brewer12345]

HB, I suspect you got compared with JG because (at least to me) you come off as a bit, um, assertive about whatever it is that is your schtick (and besides having a thing for equities, I am not sure what that schtick actually is).

As unclemick has said (paraphrased), we're all just a bunch of well-mannered sweeties here. Take it easy and we'll all get along. For example, many/most of us have significant equities positions, so when you start casting aspersions about something you appear to have no interest/recent practical experience with, it tends to rub some people the wrong way.

Perhaps you could tell us about what kinds of RE investments you find attractive? I suspect there will be bargains in the near to medium term future and I'd love to get an experienced take on what to look for and how to manage it.

 

[hellbender]

HB, I suspect you got compared with JG because (at least to me) you come off as a bit, um, assertive about whatever it is that is your schtick (and besides having a thing for equities, I am not sure what that schtick actually is).

Brewer,

I invite you to visit my very first thread and point out to me what the cause of all the fuss is (including the reference to JG).
http://early-retirement.org/forums/index.php?topic=8620.msg155031#msg155031

 

[Martha]

Hellbender, we were late to putting away money for retirement and the only way we made it to financial independence was through real estate investments. So, I appreciate your position. However, unless you buy into REITs, real estate investing is a lot of work and a lot of due diligence is required. I think the bias towards index fund type investing on this board is that it can be a low cost way of investing without the same risks as with investing in individual equities and it is not a lot of work. I certainly don't see the equity investors on this forum as being susceptible to what you call "equity hawks."

Over the last few years we have been selling out of real estate for two reasons. One, we thought that we could get more for our properties than what we ever would pay for them. Two, owing rental property is a lot of work and we did not have enough properties to get a good deal on outside management.

So, to each his own.


EDIT: I just read the thread you linked to where JG was mentioned. I wouldn't take it too seriously. I think he was mentioned only because he doesn't invest in equities and favors fixed income and real estate. Yes, JG has something of a reputation here, but very little of it has to do with the fact he doesn't invest in equities.

 

[brewer12345]

Brewer,

I invite you to visit my very first thread and point out to me what the cause of all the fuss is (including the reference to JG).
http://early-retirement.org/forums/index.php?topic=8620.msg155031#msg155031

Hmmm, I gues a certiain pugnacious tone may be what is ruffling feathers. No matter. How did the foray into hard-money lending go?

 

[wabmester]

Compared to stocks, real estate is easier to understand, and returns are easier to predict. I can calculate the cap rate on any property I buy. And I know that the fundamental driver for both capital appreciation and increases in rental dividends is wage increases. Any appreciation over the rate of wage increases is almost always speculative, and when speculation drives my yield low enough, that gives me a clear signal to sell.

With stocks, the speculative noise often seems to drown out the fundamental signal. Most stocks pay a lousy dividend, so I have to base valuations on earnings. Anybody who has ever worked in a public company knows that earnings are "managed," so that doesn't fill me with a lot of confidence in earnings as a metric.

We're also at a very strange place with stocks. Earnings are the highest ever. Some of this is due to the run-up in oil. Some is due to the recent spread between short- and long-term interest rates. Neither trend is sustainable, so it'll be interesting to see what happens to earnings (and stock prices) in the next few years ....

 

[brewer12345]

With stocks, the speculative noise often seems to drown out the fundamental signal. Most stocks pay a lousy dividend, so I have to base valuations on earnings. Anybody who has ever worked in a public company knows that earnings are "managed," so that doesn't fill me with a lot of confidence in earnings as a metric.

I disagree. With sufficient fundamental work, it isn't hard to separate out the fluff and it is much easier if you focus on cash flow.

 

[Martha]

Compared to stocks, real estate is easier to understand, and returns are easier to predict. I can calculate the cap rate on any property I buy. And I know that the fundamental driver for both capital appreciation and increases in rental dividends is wage increases. Any appreciation over the rate of wage increases is almost always speculative, and when speculation drives my yield low enough, that gives me a clear signal to sell.

Maybe yes, maybe no. I know a real estate investor who got into the business in the early 70s. He bought houses and apartment buildings to rent. Leveraged to get in, but the cash flow was just fine. Then in 1978 our local economy crashed with the steel industry. We lost a good portion of our population. People moved out. People would get behind on rent. No one was buying anything. He almost lost everything, but barely managed to hang on. Fortunately he did hang on and kept investing in real estate. His net worth now is probably 20+ million dollars.

 

[brewer12345]

Maybe yes, maybe no. I know a real estate investor who got into the business in the early 70s. He bought houses and apartment buildings to rent. Leveraged to get in, but the cash flow was just fine. Then in 1978 our local economy crashed with the steel industry. We lost a good portion of our population. People moved out. People would get behind on rent. No one was buying anything. He almost lost everything, but barely managed to hang on. Fortunately he did hang on and kept investing in real estate. His net worth now is probably 20+ million dollars.

Sounds like an issue of too much concentration and leverage, rather than anything RE specific. With too much concentration and leverage, you can blow yourself up with almost any asset class, given enough time.

 

[hellbender]

Hellbender, we were late to putting away money for retirement and the only way we made it to financial independence was through real estate investments. . . . . .real estate investing is a lot of work and a lot of due diligence is required.

So, if you had it to do over again, would you avoid real estate because it requires more effort than index fund investing?

Over the last few years we have been selling out of real estate for two reasons. One, we thought that we could get more for our properties than what we ever would pay for them. Two, owing rental property is a lot of work and we did not have enough properties to get a good deal on outside management. .

I sold my rentals to. Also for two reasons. 1) I was planning to move upon my iminent retirement and do not prefer to manage from long distances and 2) the market was obviously long in the tooth. Easy decision .. . . . no regrets.

EDIT: I just read the thread you linked to where JG was mentioned. . . . .I think he was mentioned only because he doesn't invest in equities and favors fixed income and real estate.

That's the conclusion I came to.

 

[Martha]

So, if you had it to do over again, would you avoid real estate because it requires more effort than index fund investing?

Absolutely not. Of course, this is easy to say because my husband did all the work.

 

[mathjak107]

my only regret is i didnt put everything in my fund portfolio and didnt do the real estate. i could buy almost 3 of everything today.

 

[Mr._johngalt]

Anybody who has ever worked in a public company knows that earnings are "managed,"

This is a good point. Most folks don't know/understand this.

JG

 

[Martha]

Sounds like an issue of too much concentration and leverage, rather than anything RE specific. With too much concentration and leverage, you can blow yourself up with almost any asset class, given enough time.

Concentration yes. He never has invested in anything but real estate and all the real estate he initially invested in was in one community.

Too much leverage? Only in hindsight. As I said, the properties cash flowed just fine when purchased. It was the economic crash that was devastating. If you tenants move or can't pay rent, it doesn't matter how much leverage you have.

But then again, he ended up very very rich.

 

[Mr._johngalt]

In my very first thread on this forum, someone asked me if I was related to John Galt. I didn't respond to the poster since I had no idea what he/she was talking about or who John Galt was. I figured it was some kind of insider joke and let it go. I now understand that the joke was on me since it appears that John Galt is some kind of despised character with a checkered past here.

Hello. First, being compared to me is kind of an honor. (I'm infamous). Secondly it's a good group here. I even enjoy the clueless and not so bright posters
(far far less numerous than in society in general). Finally, I kind of enjoy the
debating (fighting?) and insults/invective. But, that's just me havin' fun.
It's certainly not everyone's cup of chowder.

JG

 

[Delawaredave]

I've always seen this board as "asset class balanced" - not necessarily "pro stocks" (although there are individuals) or "pro RE" (although there are some individuals).

What I think everyone has in common is developing a "perpetual motion financial machine" to produce an income stream from an asset base, at acceptable risk.

Everyone's "machine" is different to suit their needs/comfort - made up of portions of asset class components - stocks, bonds, RE, TIPS, commodities, etc.

Each asset class has an average return, deviation of returns, and correlation factor with other asset classes.

To me, what is most important is understanding the "power of the total machine" - mixing stocks, RE, bonds, etc - what is the return/deviation of the overall portfolio.

I don't understand the "___ asset class is best" comments.

I sleep at night best when my eggs are in several less-correlated baskets (baskets purchased on sale at Walmart).

 

[mathjak107]

Lately its hard to find asset classes that dont correlate together. seems like bonds, stocks real estate and commodites are all following the same ques.


we have days all are down together. i guess eventually if we get a strong enough trend one way or another the more normal deviations will apply but for now looks like they all go together.

 

[Mr._johngalt]

Absolutely not. Of course, this is easy to say because my husband did all the work.

This guy sounds like a prince. Suggest you hang onto him like grim death.



JG

 

[hellbender]

Hello. First, being compared to me is kind of an honor. (I'm infamous). Secondly it's a good group here. I even enjoy the clueless and not so bright posters
(far far less numerous than in society in general). Finally, I kind of enjoy the
debating (fighting?) and insults/invective. But, that's just me havin' fun.
It's certainly not everyone's cup of chowder.

JG

Hi John,

I halfway thought the purpose for the original inquiry about my relation to you was simply to get me to say "Who is John Galt?"

I always considered "assertive" and "pugnacious" to be desirable qualities. Sounds like you might agree.