The Boy Who Cried “Bottom”

It seems that for the last two years I have heard one phrase uttered repeatedly. At real estate club meetings, by the spin-doctors of the Government or the spokespersons for various real estate groups it seems to be a constant refrain: “we are at the bottom of the market.” It has certainly boy-who-cried-wolf been a long way down. How does anyone really now where the bottom is?

The reality is that a bottom can only be identified after it has been passed and a recovery has begun. Those prognosticators who seem to predict a bottom with every sentence they utter have a vested interest in the end of the real estate slide. The typical real estate agent is the biggest offender, who has a greater need to find the bottom than someone whose very existence depends on it? A real estate agent only gets paid if a transaction occurs, how many houses could be sold by someone stating that real estate prices have a long way to fall?

Data Manipulation

There is so much data available today that it is easy to cherry-pick the numbers that prove whatever point you wish to make. Want to prove the market is going to keep falling? There are statistics to support that theory. Need to show that the market has stabilized? We’ve got that number. Do you need to make a case that the market is on the way up and about to explode? Got that covered too.

The next time you hear an agent, pundit or some other talking head telling you that something is a certain way, look for their bias. What is their angle? Why do they believe, or need you to believe, that things are a certain way? Sometimes, as in the case of a salesperson, the answer is obvious. Other times it may not be as clear. Do not take anything at face value, instead try to see through the spin cycle (article).

Do A Self-Test

There is a saying in poker that states that if you’ve been sitting at the table for more than ten minutes and you haven’t been able to spot the mark or sucker, then you are the mark. Another way of saying that is the easiest person in the world for you to fool is yourself. People have a way of interpreting the facts to suit their own point of view. Be careful about falling into that trap.

I remember taking a Debate class in school. The professor would have students state their beliefs on a topic and then give them the assignment of defending the opposite view in a debate. This was a great learning experience for me because it made me look at the things that I believed differently. It is a great tool to use when making investment decisions. Take whatever it is you believe and make a case for the opposite view. So the next time you convince yourself that we are at the market bottom (or top) make a case for why it isn’t so.

Like dreams, statistics are a form of wish fulfillment. - Jean Baudrillard (sociologist)