Happy New Year to all!!!
Well, since my last post, things have been pretty hectic, and not in a good way. As I predicted, the market has fallen quite a bit more, and companies are struggling to keep pace through layoffs. Everyone seems paralyzed, unsure of what comes next.
This is where I say to you: there is more opportunity now than before! The stock market as of Dec. 31 had fallen 33% in the previous 12 months. The rest of the country's real estate market has fallen anywhere from 10%-45% over the previous 2 years. Yet, remarkably, the five boroughs held on.
Sure, there was some crumbling around the edges as subprime mortgages and overleveraged investors began to fail. But it wasn't until that fateful week when Bear Stearns finally faltered that we saw the house collapse.
A great many people, gurus of our economic days from Robert Schiller to Robert Kiyosaki, have predicted this would happen. Indeed, it is happening sooner than even they thought it would. But though it is painful, in the end, there will be opportunity for those of us who are looking for our next step up the ladder to financial prosperity and freedom, or just to a comfortable home.
I was lucky - my rental properties are rented and I am even or above water in their values due to the fact that I bought them a few years ago. But they are illiquid investments - I probably could not sell them now if I had to. Thus, I hold them off the market. My stock portfolio took a hit, but I had sold many commodity-oriented stocks in July and have since been sitting on cash as well.
I am now looking to jump back into the stock market, and I think, that anyone who managed to preserve some liquidity should as well. Yes, the market for both real estate and stocks could and well may continue to fall, but this is hardly a reason to sit paralyzed on the sidelines, or to put aside life plans. Very few people manage to hit a market bottom on the nose - usually we miss it, sometimes we miss the first third of the new bull market before the media and society as a whole realizes what is happening. And the most rapid gains are always at the beginning. Personally, I'll gladly risk a further 10% drop to realize a 25% gain.
Perhaps, with the small rally that happened on January 2nd, we are finally turning around. But likely not. The market will likely continue down for a couple more months, then mill about for maybe 12-18 months, and most people will sell at this point and go into cash and bond investments that yield nothing. But then the market will turn up. Inventories and labor markets will have equalized, new companies will have been started from the dregs of the old - sublet office space, resold office furniture and equipment, fire sale services unneeded by failed predecessors. From the ashes of the old rise the beautiful newborn phoenix.
Another interesting note is that some of my friends who live in the midwest are reporting a mini-rally in real estate. My friend who lives in an upscale suburb of Detroit told me that several houses in her neighborhood had finally sold after two years of being on the market. Another friend who is a real estate agent in St. Louis suddenly has multiple offers on two of her listings and offers out for buyers on three more houses. It looks to me like some of the midwest has finally hit the comfort zone for these people. Good for them - they are seizing their opportunity.
However little the underlying capitalization of a stock may be, it is unlikely to go to zero, particularly if a company has little debt on its books (so do your due diligence!).
And real estate will never go to zero, because you are buying something tangible. The question is, at what price are you comfortable enough to purchase? When prices hit there, that is when you should pounce. Do not play the waiting game for too long, because none of us can predict the market bottom. If you want to find your new home, define what you want, what you need and what you can afford. Then go out and buy it. If you truly find what you want and need at the price you can afford, it will not seem too high even if the market does drop further. And you will never regret it.
Keep your head about you and seize your opportunity!