November 11, 2009. Veterans Day
Back In Texas. It’s nice to be back in Texas after a 3-week visit to Colorado. Day before yesterday, I caught the biggest bass I have ever caught. It weighed 8.4 lbs. The first thing I did was call Ms. Betty and tell her to meet me at the dock with a camera. I must admit that my main objective was vanity, which meant getting a picture of me with this creature. My next objective was getting him back in the water. Twenty years ago I would have cut slabs of meat from each side and thrown the remainder in the woods for the buzzards. What a shame that would have been. The most memorable part of the whole incident was watching his tail swish back and forth as he swam near the surface across the lake. Maybe my grandchildren can catch him again.
Waiting For The Elusive Stock Market Correction. Everyone expected the market to correct in September. Didn’t happen then or in October. While we expect some tax loss selling in November and part of December, late December and early January have historically been good months. It all boils down to a quote from my friend, Don Kramer. “The market will do everything it can to prove the maximum number of investors wrong the maximum amount of time.” I’m sure Don would tell us that that quote didn’t originate with him. Indeed, there is a large amount of empirical data that shows this statement to be true. This backs up my contention that it is virtually impossible to time the market with any degree of accuracy. If a number of my clients are any indication, a very large number of investors got out of the market at the very bottom, some of which vowed never to risk money in the market again. They missed the almost 50% rebound that occurred shortly thereafter. Again, there is a large amount of empirical data that shows that very few investors receive the average returns obtained by most mutual funds. Most get in when the markets are hot and out when the markets are down. The problem with exiting the market after a major drop is that no one knows when to get back in. My philosophy is not to be totally in or out of the market at any given time. Although our emphasis on cash flow didn’t totally protect us from the downturn, at least we were paid to hold on. I will continue to manage my own portfolio with an emphasis on current cash flow.
The Real Estate Market Is A Bit More Predictable. If you follow certain market statistics, you can have some idea of when a rebound is almost certain to occur. Perhaps the most reliable statistics are the number of homes on the market and the average number of sales per month in a given year. This is a measure of supply and demand. As an example, in October 2008, the inventory of properties listed for resale was 23,120. A year later there are only 18,945, a drop of 18%. This inventory is the lowest level in the past 8 years. While this is encouraging it must be considered along with sales levels. Through October of 2008, there were 41,683 properties sold or an average of 4168 sales per month. The same period this year saw an average of 3551 sales per month. This means that the current supply would be expected to last for 5.3 months as opposed to 5.6 last year at this time, indicating that we are not significantly better off than we were last year. Our experience indicates that we are near an supply/demand equilibrium when the inventory is less than 6 months. The lack of builder activity along with low interest rates are an indication that the unsold inventory will continue to drop. For those of you who would like to stay more informed about the real estate market, I highly recommend a blog by John Rebchook, with the address insiderealestate.com. That is the site where I obtained these current statistics.
I Haven’t Felt Too Much Like Writing Lately. That doesn’t mean I’m not keeping an eye on the markets and trying to keep you informed of developments in the financial markets. Stay tuned for more frequent posts in the future.
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