MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

MY THOUGHTS ON SILICON VALLEY BANK COLLAPSE

Jason MalabuteBusiness Member
Accountant · Los Angeles, CA · Member since 2016 · 2k+ posts · 902 votes

The following are my thoughts on the collapse of Silicon Valley Bank and any thoughts of upcoming bailouts. As an advocate for responsible financial practices, I believe that the government should not bail out banks that collapse due to their own risky investments. Such bailouts not only create moral hazard but also set a dangerous precedent that banks can engage in reckless behavior with little or no consequences.

Depositors should not be bailed out for savings over the $250,000 FDIC limit because they should share the risk of banking with a particular institution. When depositors place all their cash in one bank, they are essentially placing all their eggs in one basket, which can be risky. Therefore, it is important for depositors to diversify their savings across multiple institutions to mitigate risk. Additionally, depositors should consider investing their money in assets like real estate, which can provide long-term returns and mitigate the risks that come with being too liquid. Ultimately, depositors should take responsibility for their financial decisions and not rely on the government to bail them out in the event of a bank failure.

When the government bails out a bank, it sends a message that the bank's risky investments were acceptable and that taxpayers should bear the cost of the bank's mistakes. This creates a moral hazard, where banks are encouraged to engage in risky behavior with the knowledge that the government will bail them out if things go wrong. This, in turn, puts taxpayers at risk and undermines the integrity of the financial system.

Moreover, when the government bails out a bank, it effectively rewards poor financial management and risk-taking. This sends the message that there are no consequences for engaging in such behavior, which can ultimately lead to a culture of complacency and a lack of accountability in the banking sector.

In addition to the moral hazard, bailing out banks can also be costly for taxpayers. The funds used to bail out a failing bank are typically drawn from the public coffers, meaning that taxpayers foot the bill.

As a real estate investor, I am aware that financial distress in the market can create great buying opportunities. An economic downturn can create great buying opportunities in commercial real estate for savvy investors. When the market is down, sellers are more flexible on price and terms, and may be more willing to negotiate seller financing or other creative financing options. Additionally, there is likely to be less competition from other buyers as money may be less accessible. This can be particularly beneficial for real estate investors who have preexisting relationships with investors who have cash, creativity, and resourcefulness, allowing them to take advantage of market opportunities that others may miss. Ultimately, an economic downturn can be a great time for investors to acquire high-quality assets at a discount and position themselves for long-term success in the real estate market. With that said, as a real estate investor I would be extra careful with what banking institution I do business with and put my reserve money in moving forward.

In conclusion, I strongly believe that banks and depositors should not be bailed out over the FDIC amount. Bailing out banks creates moral hazard, sets a dangerous precedent, and can be costly for taxpayers. As a society, we should encourage responsible financial practices and hold banks accountable for their actions, rather than rewarding them for their mistakes.

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Realtor · Longmont, CO · Member since 2021 · 577 posts · 631 votes
3y

If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 

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  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Christopher Sandys:

    Oxford Lane?  I have a substantial position there.  Be careful, it is part of the shadow banking industry, i.e. Collateralized Loan Obligations, i.e. tranches of senior loans made into bonds.  Those underlying loans are not investment grade.  I like this CEF because it has little exposure to real estate.  


     haha yes, you buy CLO like OXLC only when it's crashed, or if you buy it monthly with dollar cost averaging, that should be fine as well

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @James Hamling:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    Maybe to an extent i.e. the Tesla/Snowflake 25 to 100x earnings junk that was going on. But I know you are in tech and know how hard all companies including them got snacked down. All of a sudden every single company in tech is focused on EBITDA. And start-up valuations/investments are even changing a bit there also. It’s no longer wholly about get the market share then figure out revenue. 

    So there is a pivot going on in tech that is backing away from some of the stuff you ae commenting on

     


     This is where I understand what James is trying to stay.

    The equivalent in real estate is the high.comp and low.comp ; but that number is pretty much stable and predictable over the years, unlike stock because DCF value is inherently correlated to interest rate.

    So Tesla is pricing $1000 while their capex/opex is the same with rate is 2% ; but when rate is 7%, their theoritical price using DCF is $80 dollar although their capex/opex is stable.

    Real estate in reality is behaving like different animal, recent indication shows it's more affected by liquidity rather than interest-rate per-se.

    This is very interesting topic really, this is why I also I dont mind taking out of 401k and re-investing in Real Estate.


    Well last 5-7 years has had very odd ratios on the the big tech stocks but if you go towards the other industries it’s a LOT more stable but I still agree there is some perceptual value. It’s just in tech it got widely out of control. 

    For example even in the AT&T example James made (BTW verizon took similar hit)
    the company might not have changed but the way TMObile was hitting both companies + plus the perceptions in value did change over that same period. So I don’t know if I’d say AT&T was in a vacuum. At the same time AT&T and VZ was taking a hit T-Mobile was growing market share and hitting them hard. 

    Also some of the things that AT&T and VZ got into (digital media) hurt both of them. T-Mobile stayed hyper focus.


    I’m not saying I disagree with James or you - especially tech stocks. but I’m also saying I agree with Scott it’s a bit of both to me. 70% around health of company, market share, and growth options, and a lot of perceptual. That said over last 5-7 years in tech it’s been a lot less facts and more perception. 

    It’s also a whole other discussion to call out that Wall Street as large with it’s ever more ridiculous growth requirements has gotten out of control. Lots of books out there about how bad the GE model was for the long term but somehow it hasn’t hit Wall Street either. Cut too far and you eventually hurt the product/company.

     


     To clarify my ATT example, I have the below chart detailing the exact event in mind. 

    When it was all happening, I searched high and low for a fundamental reasoning, all I could find just didn't justify. So, I got in under $15, because I simply couldn't find a "why". And this is my point, it was moving in a way disconnected to fundamentals. And as a whole, this happens a lot in WS, a heck of a lot, hence the entire Day Trading segment. 


    So I work with one of those companies. Super familiar with all the ups and down of telecom last year. THat specific drop I’d have to go research but Q3 wasn’t good on the consumer side of AT&T and VZ. Both are losing to TMObile at a rapid pace. Fundamental direction on Tmobile is better also. 

    That date is about 2 weeks before both their earnings call. Could be market sentiment on expecting a miss based on the harsh language both companies have had in earnings. No idea and there can definitely be swings which I was calling out but last year both AT&T and VZ took a lot of pain due to fundamentals. 

    One day swing god who knows that tends to be sentiment - usually - Credit Suisse rearing it’s  ugly head again today as an example but it’s a mix of sentiment and the report over weekend. 


     That's my point, it was sentiment, which is a perception, not a fundamental. And as the actual fundamentals came out, that proved the perceptions unfounded, it leapt back up to a level based around the fundamentals. 

    Which again, restates the fact that WS pricing moves heavily on Perceptual basis vs Fundamentals. 

    Again, if WS moved based upon Fundamentals, the movements would be near to nothing until reports come out and than would move in incremental movement to that report. We would see flat lines that than move for a few days each quarter. 

    And all the HFT would be out of it. Same as day traders. WS is not designed to act on fundamentals, the entire system is designed to TRADE, the profit motive is to make trades, and for trades there needs to be movement. The system itself is "rigged", in many ways but just keeping this to the founding premise, it's not designed to be an accurate reflection of values, it's designed for trading, by traders, for trading sake. 


     That’s why I was saying I agree with it to an extent. PErception does have an impact but generally speaking most stocks have strong fundamentals. BUT just like a bank run - perception/fear etc.. can have strong single day swings. The fundamentals tend to drive the long term. 

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @James Hamling:

    See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

    Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 



    So, you wouldn't value real estate using DCF or any methods derived by DCF, as those require future earnings?

    How would you recommend valuing commercial real estate if you have to ignore future earnings?

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:

    Again James right, what Scott mentioned in stock valuation in the 1970s/1980s...... it's more complicated than just PE ratio Scott. If it's just PE we are all already rich here lol


    You don't like the idea of using a P/E ratio to generate an intrinsic value?

    In that case, do you not like using cap rates to value real estate?  You realize that a cap rate is just the inverse of a P/E ratio, right?

    So, if we can't use cap rates to value real estate, how do you prefer to value real estate?

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @James Hamling:

     No, I would argue that Real Estate is "the" example of Fundamental value vs perceptual/conceptual.

    But, that would conflict with your earlier definition/example of "perceptual" value:

    "Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value."

    Change the word "stock price" to "market value" and this holds true for what happened to multifamily values last summer as cap rates expanded.

    If your definition is accurate, then clearly you must believe that real estate is also an example of "perceptual" value.

    If you don't believe that real estate is an example of "perceptual" value, then you probably want to revise your definition above...  ;)

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @James Hamling:

     If it's just P/E, not sure why my OXLC is at 3.58X while the industry average is at 12.22X. I should have a very nice "correction" coming if peg's back to "par".     


    Again, I can use the same argument for real estate.  Why is one property selling for a 5% cap rate, while another similar property in the same market is selling for an 8% cap rate?

    The answer is perceived risk of the asset.  Riskier assets will trade at higher multiples.  Less risky assets will trade at lower multiples.  This is the same across both equities and real estate.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Nate Marshall:

     Silicon Valley Bank had nearly twice the risk as JPM. I will post a chart later showing them compared to major banks. 


    Balance sheet risk or liquidity risk?

    Seems everyone here is mixing the two, but as someone who comes from the tech/VC space, I can tell you that the two are very different...

    SVB failed because of liquidity.  But, their LCR was at about 150% prior to their demise, putting them up there with many larger banks who were actually subject to regulation around liquidity.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @J Scott:
    Quote from @James Hamling:

    The answer is perceived risk of the asset.  Riskier assets will trade at higher multiples.  Less risky assets will trade at lower multiples.  This is the same across both equities and real estate.

    This is very interesting topic.
    But lets change equity to "ETF" ok, so there's no ambiguity of equity risk ;   Is ETF equal to real estate ? 

    Is ETF movement predictable ? no, it is impacted by major index moment and technical economy at a given time

    Is real estate movement predictable? yes LOL, is appraisal value going to change if SPY is at $5K and compare to SPY at $3K ? No. Why ? because it moves so slow it's so damn preditable LOL.

     In ETF/stock, there's price efficiency as liquidity is very efficient ; not with real estate as real estate the liquidity demand/supply is changing hands in months, in stock/ETF/future it's like microseconds. Good thing with real estate is there's no price efficiency. What you said as perceived risk is actually just matter of price inelasticity due to imbalance between supply and demand.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y

    3 months ago Redfin realtor come to my office and said the value of your home is only $840K. I said, that's Bulls*t , I change to different brokerage and I teach the realtor how to do real estate SF appreciation correctly, I come to a standard deviation where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. With stock I can't do this ; I need to know the liquidity of options and what the market maker doing, it's way too complicated, much2 ten times more complicated than PE. 

  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @J Scott:
    Quote from @James Hamling:

    See this itself is a Perceptual/Conceptual value basis: Future Earnings. 

    Future Earnings are not a factual thing, it's a "thing" of perception. Given XYZ factors one "perceives" that future earnings "will be" xyz. And than a butterfly flaps it's wings in the Brazilian rain-forest and that perception flips. 



    So, you wouldn't value real estate using DCF or any methods derived by DCF, as those require future earnings?

    How would you recommend valuing commercial real estate if you have to ignore future earnings?


     In terms of stocks trying to peg future earnings in a way of "we think this x-mas season will bring X $'s" no, I would never use a future earnings POTENTIAL for valuing real estate, I would use a comp of current rent revenues for a value placement. 

    using potential rents would be pegging a potential value, because if the property does not realize those rents, it will not realize that value.    For example, I could have an apartment building and tell someone the rents "could" be 20% more in 12 months, but nobody will pay me at a 5cap of those future potential rents, not if they have half a brain would they? No. They will say great, but the ACTUAL rents are ___ so at 5-cap that denotes a value of $____, and maybe a payment on the "potential" for increased revenue potential. But no, a person could not ever expect to get 100% of what it "could" make in revenues because it's only that, a potential, which means it also could NOT do that. 

    And if someone is buying real estate, paying a sale price based on revenues it is not making but it could make, someday, maybe, that's called SPECULATIVE investing, because your speculating. 

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣
  • Real Estate Broker · Minneapolis, MN · Member since 2011 · 5k+ posts · 6k+ votes
    3y
    Quote from @J Scott:
    Quote from @James Hamling:

     No, I would argue that Real Estate is "the" example of Fundamental value vs perceptual/conceptual.

    But, that would conflict with your earlier definition/example of "perceptual" value:

    "Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value."

    Change the word "stock price" to "market value" and this holds true for what happened to multifamily values last summer as cap rates expanded.

    If your definition is accurate, then clearly you must believe that real estate is also an example of "perceptual" value.

    If you don't believe that real estate is an example of "perceptual" value, then you probably want to revise your definition above...  ;)


     Real Estate has a component of perceptual value, as I said. 

    It's a matter of BASIS. And to what % relation each is dominated in it's price by perceptual vs fundamentals. 

    Let's look at the drop off a cliff stocks took after covid came out. Clearly dominated in it's price by perceptions. 

    Real Estate is far more weighted by fundamentals in such. Today perceptions are in large part of over-priced, and the fundamentals don't care, pricing in large part is holding is it not. 

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @James Hamling:
    Quote from @J Scott:
    Quote from @James Hamling:

     No, I would argue that Real Estate is "the" example of Fundamental value vs perceptual/conceptual.

    But, that would conflict with your earlier definition/example of "perceptual" value:

    "Recently there was a massive drop in the stock price, dropping more than 20% in a very short period of time. There was no significant change in the business itself, no significant change in revenues, no significant changes what so ever. This is only possible due to the fact of it's standing as a perceptual value."

    Change the word "stock price" to "market value" and this holds true for what happened to multifamily values last summer as cap rates expanded.

    If your definition is accurate, then clearly you must believe that real estate is also an example of "perceptual" value.

    If you don't believe that real estate is an example of "perceptual" value, then you probably want to revise your definition above...  ;)


     Real Estate has a component of perceptual value, as I said. 

    It's a matter of BASIS. And to what % relation each is dominated in it's price by perceptual vs fundamentals. 

    Let's look at the drop off a cliff stocks took after covid came out. Clearly dominated in it's price by perceptions. 

    Real Estate is far more weighted by fundamentals in such. Today perceptions are in large part of over-priced, and the fundamentals don't care, pricing in large part is holding is it not. 


    Have you considered that real estate simply takes longer to settle a transaction, and therefore appears to be less affected by perception?

    And using your example above, have you considered that during COVID, equities could be traded from a computer, while real estate required people to actually leave their houses, which wasn't much of an option for most people?

  • San Jose, CA · Member since 2020 · 42 posts · 25 votes
    3y
    Quote from @Nathan Grabau:

    If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 


     The fed made a number of mistakes, but just because treasuries are the safest investment in the world doesn't mean they can't go down. When interest rates go up, the value of 1% treasuries go down. There are people who work at a bank in cash management whose whole job is to watch this every day. They knew interest rates were headed up multiple times and could have sold the investments for a small loss instead of holding on for a large paper loss. The treasuries they invested in were long term treasuries. If they bought short term treasuries the bank would have had a lower return using depositors' money but would have safeguarded those deposits. That extra return doesn't go to depositors, it goes to the bank's bottom line.

    The same could be said about the companies that kept millions of dollars of cash with the bank. They could have taken the harder road and put the effort in to invest in short term treasuries or spread deposits among multiple banks, but they didn't.

    Capitalism is meant to kill badly managed companies. When that doesn't happen and the government backstops them, ultimately someone has to pay for it. That cost is likely spread across the rest of the taxpayers over time in less visible ways.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Mike Gordon:
    Quote from @Nathan Grabau:

    If this was a crisis that happened because of risky investments I would agree. That being said, this is a crisis that was created because the bank chose the safest asset on earth (US treasury bonds) to put their depositors money into and the Fed kept rates low too long and then raised rates too fast, and focused on lagging indicators all the while knowing they risked collapsing the banking system. If the Fed does not step in, it is likely that there will be a rush on the banks, and these banks will not be able to liquidate assets fast enough to handle the pressure and collapse. As RE investors we like buying opportunities, but we should not like government created banking system failures. 


     The fed made a number of mistakes, but just because treasuries are the safest investment in the world doesn't mean they can't go down. When interest rates go up, the value of 1% treasuries go down. There are people who work at a bank in cash management whose whole job is to watch this every day. They knew interest rates were headed up multiple times and could have sold the investments for a small loss instead of holding on for a large paper loss. The treasuries they invested in were long term treasuries. If they bought short term treasuries the bank would have had a lower return using depositors' money but would have safeguarded those deposits. That extra return doesn't go to depositors, it goes to the bank's bottom line.

    This point has been discussed numerous times in more advanced investor forums as well.

    IF you go back to August 3, 2020, their option is only to buy longer-dated MBS notes as it's yielding higher than zero return short date notes.

    In the financial history of Canada, the Soviet Union, Estonia, Ukraine, or Thailand ( LOL) everytime there are sudden changes of monetary policy, it's almost guaranteed you would experience a bank run or bank liquidity issue in the next 6 to 24 months. Next week debacle would be Credit Suisse and Ally Financial LOL

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 


     1. People emotion is not good for decision-making, better use a chart. See this is Price per square foot in USA:
    https://fred.stlouisfed.org/se...  ; what I know from this chart, during covid, we have had three uptrends since covid, it's always from Jan to May (2020/2021/2022 and now 2023) , while it only has one downtrend (July 2022-Dec 2022).

    Based on this chart we know by summer 2024, the price psf in US would be higher than in summer 2022.

    2. You are right, stock index is also predictable, because stock index accumulation is following how much money is printed by the government, that's why if you map out M2 chart with the stock index and real estate, they're almost in a parallel line.

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 


     1. People emotion is not good for decision-making, better use a chart. See this is Price per square foot in USA:
    https://fred.stlouisfed.org/se...  ; what I know from this chart, during covid, we have had three uptrends since covid, it's always from Jan to May (2020/2021/2022 and now 2023) , while it only has one downtrend (July 2022-Dec 2022).

    Based on this chart we know by summer 2024, the price psf in US would be higher than in summer 2022.

    2. You are right, stock index is also predictable, because stock index accumulation is following how much money is printed by the government, that's why if you map out M2 chart with the stock index and real estate, they're almost in a parallel line.

    to point 2, thats why at a certain point my real estate cash flow - in j just a few more years actually - not only go towards more purchases but an index fund build. When I retire early, The fund gets merged with most of the general reseve but left in a slightly less risky index fund - 5.5% average target. I stop buying real estate then but let the fund build to create equally large interest returns. 

    I’ll take both paths thanks. Because even though I like real estate no need to force the kiddos to hold on to it. Simple fund with conservative returns is fine. 

     

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 


     1. People emotion is not good for decision-making, better use a chart. See this is Price per square foot in USA:
    https://fred.stlouisfed.org/se...  ; what I know from this chart, during covid, we have had three uptrends since covid, it's always from Jan to May (2020/2021/2022 and now 2023) , while it only has one downtrend (July 2022-Dec 2022).

    Based on this chart we know by summer 2024, the price psf in US would be higher than in summer 2022.

    2. You are right, stock index is also predictable, because stock index accumulation is following how much money is printed by the government, that's why if you map out M2 chart with the stock index and real estate, they're almost in a parallel line.


    to point 2, thats why at a certain point my real estate funds just a few more years not only go towards more purchases but an index fund build. When I retire early, The fund gets merged with most of the general reseve but left in a slightly less risky index fund - 5.5% average target. I stop buying real estate then but let the fund build to create equally large interest returns. 

    I’ll take both paths thanks. Because even though I like real estate no need to force the kiddos to hold on to it. Simple fund with conservative returns is fine. 

     


    yeah, when interest rate goes down, invest in index that's tech heavy like S&P or nasdaq (as their DCF increases *DCF is actually a derivative of interest rate as well).

    if interest rate goes up, invest in commodity ETF or in TBT

    and if interest rate is extremely low, buy as many rental as possible lol

    It's that simple lol

  • Member since 2022 · 485 posts · 216 votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 


     1. People emotion is not good for decision-making, better use a chart. See this is Price per square foot in USA:
    https://fred.stlouisfed.org/se...  ; what I know from this chart, during covid, we have had three uptrends since covid, it's always from Jan to May (2020/2021/2022 and now 2023) , while it only has one downtrend (July 2022-Dec 2022).

    Based on this chart we know by summer 2024, the price psf in US would be higher than in summer 2022.

    2. You are right, stock index is also predictable, because stock index accumulation is following how much money is printed by the government, that's why if you map out M2 chart with the stock index and real estate, they're almost in a parallel line.


    to point 2, thats why at a certain point my real estate funds just a few more years not only go towards more purchases but an index fund build. When I retire early, The fund gets merged with most of the general reseve but left in a slightly less risky index fund - 5.5% average target. I stop buying real estate then but let the fund build to create equally large interest returns. 

    I’ll take both paths thanks. Because even though I like real estate no need to force the kiddos to hold on to it. Simple fund with conservative returns is fine. 

     


    yeah, when interest rate goes down, invest in index that's tech heavy like S&P or nasdaq (as their DCF increases *DCF is actually a derivative of interest rate as well).

    if interest rate goes up, invest in commodity ETF or in TBT

    and if interest rate is extremely low, buy as many rental as possible lol

    It's that simple lol

    I'd only add one variation. buy as many rentals as possible when deals are to be had. I bought one q4 last year when everybody was panicking. COmmented how i used high interest to push down asking price initially then when roof was uninsurable to push it down further. It's still early but even getting it on the market just before new year - well we are on track for 27% CoC but I'm forecasting 21% conservatively. Deals are always there and should be snapped at any moment - despite high interest.

    James would love that if the thread was still circulating. 

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @Michael Wooldridge:
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:
    Quote from @Carlos Ptriawan:

    .... where I predict my home would be sold between 935K to 970K based on variability of comps and following M2 growth LOL . It's sold for 980K as accurately predicted. 

    You predicted between $935k and $970K and you think it's selling for $980K is accurately predicted? 

    If that's your definition of predictability, I think I'm done with this conversation... 🤣

     hahahahaha I am able to solidly sell it 2 standard deviations above Zillow estimate. 

    Dude, there's no rocket science in real estate. Since you are the flip king in BP you know how to play it too.

    Completely off topic but it’s a funny point around real estate. That argument many of us were involved in last year has pretty much come true of flat prices in real estate due to low inventory. It was predictiable but people were convinced the rates….. 

    People get way to emotional with real estate. Meanwhile out of all the investment vehicles it’s incredibly predictable and easy to monitor. Hell it’s why I forced a primary home new construction settlemtn in the same week we paid for our rather expensive wedding. We had 7 months of incredibly stress but because were one of the first in on the development from signed contact to closing we had a 10% appreciation gain on the property we bought. Sucky week but fun return in the long run.

    I do think stocks are pretty predictable (index wise) over the long run 10-15 years. But I do wonder why so many ignore the values f real estate and get so emotional when stocks can crush you in a day. 


     1. People emotion is not good for decision-making, better use a chart. See this is Price per square foot in USA:
    https://fred.stlouisfed.org/se...  ; what I know from this chart, during covid, we have had three uptrends since covid, it's always from Jan to May (2020/2021/2022 and now 2023) , while it only has one downtrend (July 2022-Dec 2022).

    Based on this chart we know by summer 2024, the price psf in US would be higher than in summer 2022.

    2. You are right, stock index is also predictable, because stock index accumulation is following how much money is printed by the government, that's why if you map out M2 chart with the stock index and real estate, they're almost in a parallel line.


    to point 2, thats why at a certain point my real estate funds just a few more years not only go towards more purchases but an index fund build. When I retire early, The fund gets merged with most of the general reseve but left in a slightly less risky index fund - 5.5% average target. I stop buying real estate then but let the fund build to create equally large interest returns. 

    I’ll take both paths thanks. Because even though I like real estate no need to force the kiddos to hold on to it. Simple fund with conservative returns is fine. 

     


    yeah, when interest rate goes down, invest in index that's tech heavy like S&P or nasdaq (as their DCF increases *DCF is actually a derivative of interest rate as well).

    if interest rate goes up, invest in commodity ETF or in TBT

    and if interest rate is extremely low, buy as many rental as possible lol

    It's that simple lol

    I'd only add one variation. buy as many rentals as possible when deals are to be had. I bought one q4 last year when everybody was panicking. COmmented how i used high interest to push down asking price initially then when roof was uninsurable to push it down further. It's still early but even getting it on the market just before new year - well we are on track for 27% CoC but I'm forecasting 21% conservatively. Deals are always there and should be snapped at any moment - despite high interest.

    James would love that if the thread was still circulating. 


     Those who follow you and James advice already made money by now ;-)
    the situation is very different now compared to Nov 2022 when that thread is still hot, In Nov 2022 I could see an open house for a house selling for $699k, and now everyone is selling at 1mil price, this is the time when within just three months the market has changed so much.

    Another proof that timing real estate activity is very important.

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y

    How do you determine what a standard deviation is above a Zillow estimate?

    Can you share the math with me?

  • Member since 2019 · 7k+ posts · 4k+ votes
    3y
    Quote from @J Scott:

    How do you determine what a standard deviation is above a Zillow estimate?

    Can you share the math with me?


    https://www.calculator.net/sta...

    or use bollinger bands 

  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    3y
    Quote from @Carlos Ptriawan:
    Quote from @J Scott:

    How do you determine what a standard deviation is above a Zillow estimate?

    Can you share the math with me?


    https://www.calculator.net/sta...

    or use bollinger bands 


     I understand how standard deviation works. I'm curious how you determined what two standard deviations was for this specific property.

    What were the comps you used?  And what did you do differently?

    Consistently being two standard deviations above the mean when selling in a relatively efficient market seems near impossible to me (but that's just my understanding of the market and statistics).  

    I'd love to understand how you do it.

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