Capital Erosion

Try that again, not sure what happened:

How much investment capital has been eroded over the past 12 months? Folks on this board have posted continually that it is much better to rent and invest the ”would be” down payment money in the market. I understand that there are some sophisticated investors on this board, but my guess is that the average capital erosion based on bad investments will exceed what an average equity hit a home owner in Manhattan will face during a “correction”. I’m sure very few (other than anon3) will admit this, but I just know it to be true.

For those of you doing rent vs. buy analysis, make sure you figure a negative return on invested capital.

I'm surprised nobody's jumped on you, JuiceMan, though I tend to agree with you here. I'm sure there are some that would advise you to hold cash/commodities or invest in foreign markets/currencies, but I don't see those as exciting positions either at this point. That's part of the reason the facile argument/mockery directed at buyers/owners is a bit shallow - the downturn is affecting pretty much everyone, not just an isolated subset. The real question is, which position is most tenable? I know stevejhx keeps saying equities will be fine, but even among the 50% correction crowd, I think he's in the minority there, especially since the DJIA actually dipped below that mythical 11,000 mark.

It's a toss up where to put your money, anything could happen. There are some good buys in both sectors. But, if it was me I would put it in equities as it is going to be liquid and generally the stock markets recover faster than an illiquid investment like real estate. And because of entry and exit costs and longer up or down trends for real estate it makes it tough to invest in it for the short term. And IMO, you will still get a chance to hop into real estate if for any reason the RE market turns and starts trending higher. Tho, I seriously doubt that is gonna happen in the next few years.

Look at General Motors, who would have ever thought they would cut their dividend, or see the stock at 9.00 per share. It is a bad time for all, but being one of the bulls I will take my 2 rental apartments in Manhattan over these stocks any day.I can see a correction happening and the last unit I bought was 20% under market.The answer will be revealed in years to come not in the near future.

It depends on whether you're a trader or an investor. Day traders probably got killed. Investors who hold onto their assets for a long time may have a paper loss, but not a realized one.

Last year was a phenomenal year for me, so far this year I'm in the red on a tax accounting basis. But until I need to sell, there is no loss, and I don't need to sell.

"I know stevejhx keeps saying equities will be fine, but even among the 50% correction crowd, I think he's in the minority there, especially since the DJIA actually dipped below that mythical 11,000 mark."

I don't own any US equities, though the US market does affect my holdings psychologically. After a huge gain last year I dumped most of China early this year, so I have some unrealized losses. I still hold Brazil, which is still significantly up from where I bought it, but down from its heights a few months ago. But it's very volatile, so I don't pay attention unless I see something fundamental, which I don't.

I also own real estate, as you know, and prices are down about 10%. Where I own never went up much so I don't expect it will go down much, and I'm still well ahead of the game. Unless you're an active trader, there's no way you can avoid these ups and downs.

You're starting to see some re-regulation of the stock and commodities markets; there will be more, since this unprecedented volatility is dangerous to the economy. Just like you'll see more regulation of the financial sector, to prevent this from ever happening again.

bjw2103, you make a good point. Everyone suffers in a downturn and my guess is a lot of folks got hurt in the last few months. It cuts both ways.

surdy, fair point. In some cases however, it is good that real estate is illiquid, especially for the inexperienced investor. Having a savings account full of cash makes some feel like they need to do something with it, which they often they do. The wrong thing. I would much rather ride out a real estate correction while living in Manhattan than be hoping for my Bear Stearns / JPM stock to come back. Or worse, people take what they have left and make bigger bets trying to cut losses. Being illiquid can be a very good thing.

oops, "be hoping" = hope

stevejhx
about 6 hours ago
ignore this person
report abuse It depends on whether you're a trader or an investor. Day traders probably got killed. Investors who hold onto their assets for a long time may have a paper loss, but not a realized one.

Holy Crap, this guy just make the exact argument that rejecting his prior judgements on real estate investing.

Mark this topic!

"Holy Crap, this guy just make the exact argument that rejecting his prior judgements on real estate investing."

What? Day trade in real estate?

Investors who hold onto their assets for a long time may have a paper loss, but not a realized one.

You think that people are all losing money on real estate. Complete joke.

To address the original point - yes and no. Many asset classes are correlated and go up and down somewhat together. Therefore, whether you bought Manhattan real estate at the peak (say a year ago), or bought stocks at the peak (say a year ago), you probably overpaid and are down since. On the other hand, if you bought oil a year ago, you made a killing.

The trick is timing the market and buying (any asset class, RE, stocks, commodities, etc.) at or near the trough, not the peak. Then you either hold, or sell at/near the peak, depending on your needs.

Those that decry timing the markets and make blanket statements like ABCD asset class always goes up in the long run either haven't studied history or have a centuries-long definition of long run. Someone buying Nasdaq 9 years ago would be more than 50% down today, and that's a pretty long run.

To be fair, I don't consider myself smart enough to time many markets. But both Manhattan RE and stocks seemed way too overpriced a year ago. I didn't have the smarts or the balls to invest in other asset classes that were underpriced a year ago, so I kept all the money in savings accounts, cd's etc. I made something like a measly 3% annual return, but it's better than losses.

As an aside, "assuming" a negative return on invested capital as JuiceMan suggests seems crazy to me. You can always hold cash with a zero return.