Comments on: Bears to the rescue?

By: Freako

Freako — Sun, 24 Dec 2006 21:50:00 +0000

Like I told Rentah. YOU implied that I said buy anytime.No, you implied it, I said it. In fact, don't you find it telling two people independently feel that you implied it.How did you imply it? >If it did, you only lose money if you sell.That suggests that you only lose if you sell. Implicitly, it says that you win (the opposite of lose) anytime you buy. By that logic, there is no bad time to by.On that topic, do you think right now is a good or bad time to buy?t is the same as when your stocks take a dip. If you sell, you crystallize your losses.That makes absolutely no sense at all. I thought we went through this a few weeks ago. And what the heck does "crystalize" mean? Do you mean actualize? Anyways, who cares, sunk cost. Paper losses are real losses. Would you argue that a gambler in Vegas hasn't lost as long as he can get back into the casino and has a chance to win it back?Here is my age old example:Mr. X buys into Acme Co. at $10. Mr . Y buys in at $20. Mr. Z buys in at $30. The company slides back to $20 and change on some bad news. What should each investor do (they have identical risk tolerances etc.)With all do respect I think this question is a little flakey,The purpose of this hypothetical situation is to remove the ambiguity and extraneous information in order to focus on the core issue.Perhaps I should have phrased it "if it was known with certainty that prices that prices would drop by 20% over the next 2 years and then increase by 30% over the next 5 years, what would you do?"The UNAMBIGOUS answer is hold off buying (or sell if already an investor) and wait for prices to drop.But still I hear people argue that it is "OK" to buy because over time you don't "lose" anything if you just wait. That is just a plain dumb argument, as compared to a person who acted optimally you lost vastly.If my investment properties were 3 legged dogs, with low rents, and high future repair costs, I would unload them. However, if the properties were in good shape, with good tenants, and positive cash flow. I would probably hang on, unless I needed to liquidate at that time.Makes absolutely no sense to me, but to each his own. Wouldn't the shape, cash flow etc. be reflected in the price? The only other person who keeps making this argument is Rob. Shouldn't the decision to sell be based on value relative to potential?

Current score: 0 (to vote for this comment, please visit the site)

By: the pope

the pope — Sun, 24 Dec 2006 15:53:00 +0000

Hello Aaron,whether everyone agrees with your views or not you are %100 percent welcome here, in fact as I've stated I like to hear both sides of the debate.If you sell, you crystallize your losses. If you absolutely need to sell, then it is a different story.You toss in 'need to sell' almost as an afterthought here, but I think its worth more attention. The market has natural cycles that bring prices up and down, but those can be pushed to the extreme by economic factors. One of the factors that would contribute to a BIG drop in prices would be a bad economic climate where the 'need' to sell becomes a lot more likely for people that are over-extended by todays prices and have no financial cushion to protect them from job losses, reduced income or other problems.

Current score: 0 (to vote for this comment, please visit the site)

By: rentah

rentah — Sun, 24 Dec 2006 15:41:00 +0000

aaron: I'm not sure how you calculated at 50% or greater drop in Values. Can you expand on that?Sure.The last four major pullbacks since 1970's have AVERAGED 28%.The current runup has been excessive, even in historic terms, in terms of fundamentals, as well as technically.So, I'm expecting a pullback of close to 40% peak to trough.Add a 'disaster', or a perfect economic storm (or even a few components thereof), and you'll easily see 50%.That's just rhyming history.Note: I'm not naive enough to expect to time the next bottom accurately, and I'll personally be happy with anything above a 30% drawdown, or when rents come into line with prices, whichever comes first.

Current score: 0 (to vote for this comment, please visit the site)

By: rentah

rentah — Sun, 24 Dec 2006 15:30:00 +0000

freako: But wouldn't the same logic extend to selling when the market is peaked?Yes, but it's such a drag to be bothered with selling. Much easier to close your eyes and hope for the best.

Current score: 0 (to vote for this comment, please visit the site)

By: rentah

rentah — Sun, 24 Dec 2006 15:28:00 +0000

freako: Let's see if you can figure that out.I know, but only because I've seen you discuss it before, and it's very valid.

Current score: 0 (to vote for this comment, please visit the site)

By: Freako

Freako — Sun, 24 Dec 2006 13:26:00 +0000

I don't think you can really debate the logic of buying & holding. The historical stats speak for themselves.Buying and holding makes sense if the market follows a random walk. Do you think the market follows a random walk? That is the crux of matter.If it does not, then market timing will pay off big. Which implies that the logic of buying and holding is very much open to debate.Obviously buying when the market is down is smarter than buying when the market has peaked.But wouldn't the same logic extend to selling when the market is peaked?

Current score: 0 (to vote for this comment, please visit the site)

By: Freako

Freako — Sun, 24 Dec 2006 13:23:00 +0000

Over the past 25 years SFH in GVRD have seen an average of approx. 7% growth. Over the last 25 years (Q2 1982 to Q2 2006), the (arithmetic) average appreciation was 6%. Inflation was 3.4% Compounded, it would be higher, as early inflation was quite high, but I am too lazy to crank out those calculations.That may seem like a small return, but when you are dealing with 300, 400, 500, $600,000 investments the returns aren't all that bad.Yes, not a huge real return. But when dealing with large amounts such as several hundred thousand dollars, most of us have to use the "magic" of leverage. The average mortgage rate for the period was ... drum roll please ... 9.87%. That would result in a ... negative return. Not entirely fair comparison from my end as I left something out that should be included. Let's see if you can figure that out.

Current score: 0 (to vote for this comment, please visit the site)

By: aaronbest

aaronbest — Sun, 24 Dec 2006 12:43:00 +0000

Rentah said..."Over the long term, RE makes mid-single figure percentage returns, nothing to write home about.Timing the market vaguely right makes a MASSIVE difference to your returns and to your overall financial health.So don't make light of the timing; all of these 2 & 3 kinds of statements imply that buy and hold is the way to go, so buy anytime. It's a deeply flawed perspective."Over the past 25 years SFH in GVRD have seen an average of approx. 7% growth. That may seem like a small return, but when you are dealing with 300, 400, 500, $600,000 investments the returns aren't all that bad. What do you recommend investing in? What kind of returns are those investments producing?Actually YOU implied that I said buy anytime. Obviously buying when the market is down is smarter than buying when the market has peaked. I don't think you can really debate the logic of buying & holding. The historical stats speak for themselves.

Current score: 0 (to vote for this comment, please visit the site)

By: aaronbest

aaronbest — Sun, 24 Dec 2006 12:40:00 +0000

Freako said..."You say that people use scare tactics to get people to sell. Maybe. But then your comments can be construed as disuading people from selling. Is one better than the other?"I guess it could be construed that way. What I wanted to get across was, it is pretty stupid to sell when the market takes a dive. It is the same as when your stocks take a dip. If you sell, you crystallize your losses. If you absolutely need to sell, then it is a different story.

Current score: 0 (to vote for this comment, please visit the site)

By: aaronbest

aaronbest — Sun, 24 Dec 2006 12:27:00 +0000

freako said..."If you knew with CERTAINTY that prices would be down 20% over the next 2 years, would you still buy today? Similarly, would you sell your investment properties."With all do respect I think this question is a little flakey, but let me humor you.If I knew the market was going to drop 20%. I would obviously know what the exact date was that was going to happen, so I would wait for that day to buy so I could time the market perfectly.If my investment properties were 3 legged dogs, with low rents, and high future repair costs, I would unload them. However, if the properties were in good shape, with good tenants, and positive cash flow. I would probably hang on, unless I needed to liquidate at that time.

Current score: 0 (to vote for this comment, please visit the site)