A few weeks ago, I advised SMB partners to liquidate their stock equity portfolios as major indexes are approaching recent highs. I still stand by and defend this “buy low and sell high” strategy. It’s now time to buy again – but this time I’m talking real estate--and this is your Pocket MBA moment.
I’m a student of economics, and CNBC and Marketwatch are my teachers. Add the dimension that all real estate is local, and I hope you’ll find my analysis interesting. In fact – a recent article in my hometown Bainbridge Island Review points toward a rapidly improving market. Hang on fast.
First: Let’s discuss imperfect markets. Even the best investor will never sell exactly at 11:59 pm or the mathematical peak. Likewise, a perfect investor won’t buy at 12:01 am or the bottom. We’re imperfect beings. So my advice to liquidate stocks to a cash position is based on the markets at or near recent highs and how the underlying economic pillars aren’t that strong. For example, the Fed is currently pumping more than $85B into the macro economy each month. That feels a bit icky and artificial. Similarly, history will likely show the true bottom of the housing market has already occurred, likely in late 2011/early 2012.
Second: The good news is that it’s not too late to buy! Even though Realtors are reporting a robust 2012, that because the baseline was so low. Perhaps hosing prices have increased with modest single digit gains. So be it. But remember that there are additional investment variables you need to consider. For example, the current general level of mortgage interest rates is so low that you literally have an offer in front of you that you can’t refuse! Even if the house you might upgrade to or convert to a rental isn’t perfect, it’s almost free money out there; the low rates are almost reason enough to buy residential real estate.
Bottom line: You need to manage your money to make money. The old school buy-and-hold mentality doesn’t seem proper in the changing times.
Stay tuned for more Pocket MBA updates!
