Who says they don’t ring a bell at the bottom? Have we hit the bottom in the real estate market?
Well, I’d like to think that we are close.

Here’s how I suspected we were at the top:
1. When everyone, and I mean everyone, I knew was talking about real estate.
2. When every other person I met was getting into RE Development and/or had sold a piece of real estate for a sizable profit.
3. When HGTV had a show called “Buy it and Flip it”.

And yes, the housing bubble resembles the Internet bubble if only in that during that period everyone I knew was abuzz about which dot com stock they just made $100/share. So when your butcher is all of the sudden a stock picker or a real estate developer its a sign we are at the top.

So let’s take the flip side of the euphoria. If we get one more daily dose of depressing news, I’ll scream. And don’t we all feel down? And aren’t we all talking doom and gloom? And the media is just piling on the bad news. I think we’ve all capitulated….why don’t we just close our eyes and pray it ends soon.

OK – so isn’t this the opposite of the top? Have we hit bottom? Is it today, maybe. Next week or next month, maybe. But isn’t it when it’s the darkest that the light shines brightest. We all want to see the glimmer on the horizon…Perhaps the time is now and if so blue skies can’t be far!!

And remember – Price and Proof are never available at the same time (A lesson well-learned in graduate school !!)

Back in 1993 I experienced a small meltdown in the fixed income/mortgage backed securities market. Fortunately I worked for a money management firm that focused on neutralizing risk and adding incremental value through security selections which provided yawn-evoking enhanced returns over a stated benchmark. In 1994 our team successfully raised close to $15 billion in assets – my mantra, “Bonds are Boring.”

Now let’s get down to reviewing definitions:(all will be quoted from Merriam-Webster)

FIXED Pronunciation: ˈfikst Function: adjective Date: 14th century
1 a: securely placed or fastened : stationary b (1): nonvolatile (2): formed into a chemical compound c (1): not subject to change or fluctuation

INCOME ˈin-ˌkəm also ˈin-kəm or ˈiŋ-kəm
Function: noun
Date: 14th century
1: a coming in : entrance, influx
2: a gain or recurrent benefit usually measured in money that derives from capital or labor; also : the amount of such gain received in a period of time

If we pay attention to how these types of securities are defined we wouldn’t expect anything more from them. If you want equity-like returns, stick to equity.

Now let’s apply this to Real Estate. In previous blogs, I reiterated real estate’s traditional role as an inflation hedge and store of value with little liquidity. Not a buy and flip asset or an ATM machine.

REAL Pronunciation: ˈrē(-ə)l Function: adjective Etymology: Middle English, real, relating to things (in law), from Anglo-French, from Medieval Latin & Late Latin; Medieval Latin realis relating to things (in law), from Late Latin, real, from Latin res thing, fact; akin to Sanskrit rayi property
Date: 14th century
1: of or relating to fixed, permanent, or immovable things (as lands or tenements)
2 a: not artificial, fraudulent, or illusory

ESTATE Pronunciation: i-ˈstāt Function: noun Etymology: Middle English estat, from Anglo-French — more at state Date: 13th century
b (1): possessions, property; especially : a person’s property in land and tenements (2): the assets and liabilities left by a person at death c: a landed property usually with a large house on it dBritish : project 45British : station wagon6: farm, plantation; also : vineyard

Real Estate is tangible. We are not growing more of it (other than developments and high rises.) But it is not equity and does not promise double digit returns. It promises something that’s physically existent.

Buy real estate because you need a house to live in and can afford it, or land for farming or passive enjoyment because you can afford it, or commercial building because it makes sense for your business to own real property. It’s real, hang onto it if you can.

During my days in financial services we jokingly called Bear Stearns, Bum Stear…little did we know how true that would turn out to be. I also really wanted to work for the venerable investment house in the mid-1980’s. Back then the chairman was Ace Greenberg – he ran a tight ship and was known for his “Paper Clip” memo – basically chastising any employee who wasted firm resources and threw out paper clips. What a difference 20 years makes.

Between this, Eliot Spitzer and countless other recent disappointments, how does one rationalize all this news and move forward with optimism. We all need to wake up and review some general truisms and principles by which to live!! Firstly, if something seems to good to be true (like repackaging crappy mortgages into A or better-rated mortgage-backed securities ) it usually is too good to be true!! Secondly, if you don’t understand it, and big, complex words are used, don’t automatically think you are stupid – it probably isn’t logical so avoid it like the plague. Thirdly, stick to value when investing in stocks, real estate and consumer goods – for stocks look for companies with real year after year earnings and cash flow, for real estate, look to areas that have not been over-developed and locations with few or no foreclosures, and for consumer goods – stick to the basic necessities. And lastly, work hard and stay focused and positive!!