My education in real estate investing came in my first buy. I bought a modest $150,000 house on a few acres 30 miles outside Boston in 1988. When the the bank seized it they sold it at auction in 1992 for less than $100,000, in spite of my $25,000 in improvements.
There's a house in the foothills in Santa Barbara, California, near where I got married that famously sold for $100,000 in 1929 and $5,000 in 1939. My Dad had been telling my that story since I was a kid growing up in nearby LA. I thought I was being cautious on my first house, but markets fluctuate.
My former UUNET employees (by then WorldCom) were literally laughing at me on the golf course one day in 1999, because I'd sold all my WorldCom stock, and it had continued to rise. I was investing in residential apartment buildings, gold, bonds and US waterfront older single family residences.
"I'm not stupid," I remember one saying, and he wasn't. But he bought into the conventional wisdom. He told me, "I can handle a drop of 10 or 20 percent in any one equity." I asked, "How about 90% How about 100%?"
It was a little embarrassing that they turned from me because obviously the old retired fool was off his game. And I had given them the stock option packages that had made them (oh so briefly) millionaires.
And WorldCom did go to zero. And 19 out of 20 lost everything to margin calls. And I'm still not working.
The moral of the story is to try to spread the story of the moral hazards of bubbles with those you care about, knowing full well they probably won't listen. That's why Eric started iTulip. It's still the right thing to do.
3 comments:
I am one of those fortunate "loved ones". My wife and I were about to buy a Condo developed by my new brother-in-law, and that would have sucked.
The bank was ready to loan us more money that we could ever pay, EVER PAY, 0 down, I mean we didn't put any money down, and they had the papers there in front of us ready to sign.
WTF!?!
So THANK YOU OL' FOOL!
Oh yeah, and we're still dealing with a house my mother-in-law bought that is rapidly loosing value. Jeez.
Speaking of bubbles...couldn't the entire U.S. economy over the past...50 or so years be called a bubble? In a global perspective, there has been tremendous growth which "cranks" all along have called unsustainable. Due to the fact that the percentage of Global resource consumption used to fuel that growth has been extremely disproportional to the percentage of people profiting from that growth, there had to come a day of reckoning. As the rest of the world better understands that disparity, the leveling influences speed up. One anecdotal factoid: the number of undocumented Central Americans coming to...no; FLOODING into the U.S. coincides with television, Internet and other mass media growth in the poorer sections of those countries. People who did not risk the illegalities before, because they probably thought it really wasn't as incredibly different than their own existence now know. Knowledge: dangerous commodity to share wiht poor people.
The U.S. Government's plans to prop up unjust laws to keep the leveling process at bay in this period are reminiscent of the same tactics in Pre Castro Cuba, and Iran in the Shah's day...and just about everywhere else the U.S. Foriegn policy has had a strong influence during that 50 year bubble.
So what we are talking about is sort of a bubble upon a bubble. When the little bubbles burst, we all go "Gads! I lost my 401K" But when the big one pops...we will be saying "Pass that ammunition over here!"
And justifying Jeff's ranting rhetoric by publicly beheading those who lied to us.
I am learning to build simple machines fueled by methanol that I extract from my pig's shit.
nuff said.
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