A Canary In Real Estate's Coal Mine [View article]
GHargis,
As an author, I only wish I had the power to move the market at all by writing a pro/con article. Whether us authors have skin in the game or not, its not a pump and dump.
A Canary In Real Estate's Coal Mine [View article]
TFL, I agree with you that at least some of this rise in real estate is fueled by investors. I am a refugee in Northern California, and I live in an area with no industry, but housing prices are on fire. Wages haven't gone up, and when accounting for expenses, the new house prices exceed what the vast majority of people could afford. Most of the recent houses sold in this area have shown up on the rental market. Of course, my experience is a tiny sample size and could be a false perception.
A Canary In Real Estate's Coal Mine [View article]
danstvguy, I can assure you that the articles written for the vast majority of us are not worth the views. Most of us are not selling books, or newsletters. Many of us do not companies backing us, or legions of twitter fans who consider us gurus. For those of us who do not have this fan base built from elsewhere, the hits, recognition, and money earned is definitely NOT the main point of these articles. I can't speak for this author beyond that, but I can say I write MY articles to receive feedback on my techniques and analysis. Generally, I receive little of that. Sometimes, I have skin in the game. Sometimes I don't. If its a stock analysis article, I write the article as I'm doing my DD. I usually picked up the idea from a screener, and am considering the stock, but don't know whether I want to buy it or not until the research is complete. If I'm not compelled to purchase the company after the research, I'm still going to post my work. I wouldn't have skin in the game in that case, and you'd be discarding my work, as you have "TFL's". Also, given the authors article being about an indicator and what it could indicate about the future "macro" wise, I'm not sure what position he should report on his disclosure. Maybe he has "skin in the game" somewhere in the market, or he has "skin in the game" by keeping his money in cash.
Anyways, I look forward to your article. Please keep us posted.
Cooper Tire & Rubber Co.: Should Investors Load Up Or Tread Carefully? [View article]
jbonefish,
Thank you for the kind words and for commenting. I'm taking a break from the analysis for a bit and writing a few lighter articles. If the market continues its drop, I'll be hard on the lookout for some new picks. I may have a follow up on CTB, on how I ended up trading it, since I wasn't too keen on owning it for the long run. I haven't decided whether I want to write on it or not yet.
A Canary In Real Estate's Coal Mine [View article]
The Financial Lexicon or TFL as I shall call you now if thats ok,
As I understand it from your article ABI is mainly an indicator for non residential building, or are you using it to enterpret slowdowns on the residential side as well? I can definitely see how it may signal future weakness in the economy, but not sure I follow you on how its a canary for real estate (given some of us are stuck in residential realestate mindset right now).
I definitely agree that the market is responding to weak growth in the economy with an enthusiasm that bewilders me. Still, I've never experienced a real, longterm bull market in my investing lifetime (we were calling the bull market weak from 02-07, but I guess that was just left overexpectations from the 80's and 90's). I often wonder what the great "wall of worry" will look like when the next long term bull sets in. I imagine I will be like most people, and not recognize its existance until its halfway over.
A Canary In Real Estate's Coal Mine [View article]
danstvguy,
What exactly is your critique with this article? Perhaps you could step up and write an article discussing an opposing position.
The financial lexicon,
I don't know enough about this topic to comment much. How likely is it that this ABI dip you are writing about is simply an anomoly (since it is not far into contradictory territory as you said)? Do you have history on ABI that extends beyond 2011? I'm just trying to learn more about this topic.
Is Our Corporate Tax System Irrational? [View article]
Michael,
I agree with you. I don't have love or hate for them. They are entities whose goal is to make profit. I think its silly how we vilify some corporations, while deifying others. But I am enjoying the comment line so far. I hope it gets a lot more lively. I've got a slow day tomorrow.
Is Our Corporate Tax System Irrational? [View article]
Michael,
Oh boy. I'm looking forward to the commentary this article is going to spin. I find it interesting that you show how energy companies pay the most. I predict 10 posts claiming that pro energy company stooges compile this data, 40 different posts claiming taxes should be high on energy companies because of societal costs, and 12 posts claiming YOU are paid by energy companies to publish this.
Dripping Works: A Real-World Example [View article]
Dave,
"I am not sure this is a productive conversation." I quite agree.
"Whatever generalizations you want to draw about DG investing is up to you." You are too sensitive in regards to anything you perceive as an attack on DG investing. My comments weren't even directed towards DG investing, which I explicitly stated was an effective investment strategy.
My problem is with dripping, and the use of it as a shortcut for allocating resources. My problem, explicitly stated, is with the mindset that it is somehow less worrisome to lose dividends invested, or that they don't have to be as effective, as new money invested. The "house money" attitude exists outside of DG investing as well. It is not an attack on DG investors.
You seem to agree with me on dripping, even if you don't think of it in the same way. You actively choose where to put your money. Congratulations.
You can have a problem with my premise "allows you to ignore" all you want. The truth is, mental games like paper losses and house money are there to allow ourselves to avoid painful truths. This has been established by studies conducted by Daniel Kahneman. None of my statements were meant as an insult, so please don't take them as such.
Dripping Works: A Real-World Example [View article]
Mike, You are a veteran of 2001 and 2008, and so am I. 08 was a terrible time for me both investment wise, and otherwise. Some of my best "investments" were terrible, but were doing great prior to 07. Then they began to crash, and I held on because they'd always come back before, and I wasn't really taking a loss until i sold them. I ended up selling many positions though, when I dropped the "paper loss" attitude, and the positions i picked up with my remaining money were much better, because I used rational thought to pick them rather than rely on tenacity and comforting mental tricks. I got real capital losses to offset my significant capital gains coming off the bottom. I more than tripled my money since 09. Many have done better, but I'm just fine with my returns.
The reason not to bail when everyone is panicking is because your investments are steals at market price and are sustainable businesses, not because they aren't losses until you sell them. May I humbly suggest that you learned the wrong lesson from 08 if you do not already know that. I hope you don't ever have to learn the lessons I did.
I'm done taking your valuable time up on this board. Behavioral biases cost people much more money in investing and trading than any other factor. Avoiding these biases has a much bigger impact than choosing how to calculate YOC, or what P/E to use when screening etc. If I haven't successfully explained why such thought processes are potential traps, then I probably won't succeed with further posts.
Dripping Works: A Real-World Example [View article]
Mike, Aversion to loss is a behavioral bias we are all subject too, no matter how intelligent we are. Viewing a drop in stock price as merely a "paper loss" and not a real loss, is by definition, something we tell ourselves to avoid the pain of loss. When used to ignore the daily meaningless fluctuations of a stock, its somewhat helpful. When used to dull the pain of a steep drop in price, it is destructive. That mindset allows people to avoid concluding with finality that they made a mistake. "Its only a paper loss" is usually a prayer that things will start to go ones way. Its seldom a phrase followed by a rational thesis on why any given company is worthy of investing in.
Dripping Works: A Real-World Example [View article]
Eric, You could look at stock holdings like each is a car wash, but in some ways, its more appropriate to say the entire portfolio is a car wash. In my proposed example, you are saying that all money earned from car rinses should be reinvested in car rinsing equipment, and all money earned from car waxes should be reinvested in car waxing equipment. IMO, this is a more accurate metaphor because in my example your choice of where to reinvest your profits is driven not by what has the potential to earn you the greatest return, but simply the source of the revenue.
Dripping Works: A Real-World Example [View article]
Dave,
My response was meant to be somewhat ridiculous, but maybe I over did it. I'll try to communicate in a more effective way to you in the future.
First, in your original reply to my post, you chose to play semantics regarding "new money". The point of my original post was that one should make a deliberate decision on whether to reinvest or not based on whether an asset is the best source of cash flow available to you. Thinking of money as the house's money (that's a gambling reference, if you aren't familiar with it) is not helpful in that mindset. Your reply to me did not refute that. You chose to justify it as "old money" since its part of the return of your original investment.
My tongue in cheek stripper reply was addressing that. I asked, in essence, if you throw the dividend away, is it as useful as reinvesting it in something that produces cash flow. I assumed you would say no. If so, why is it better to invest your cash in something that produces less cash flow than an alternative that produces more cash flow. Michael gave one reason (small portfolios don't benefit enough from a dividend pooling strategy to make it worthwhile). You did not add a reason though, when you countered with the "its not new money when i sell stock so it must not be new money now" logic.
My other point I tried to make to you is that money is fungible. If you are calling it "old money" when you invest it in the same stock that paid you the dividend in question (drip), but consider it a new investment when you invest it into a new company, then you are engaging in mental accounting. I apologize for the term "magic" to describe this act of mental accounting. Where I'm from (the U.S.) its a somewhat common phrase.
As for my final comment, "total returns aren't supposed to matter to DG investors", I'm not sure what you find so ridiculous. Were I to have come on here and posit, as so many do, that you can't beat the market with a DG investing strategy, you would point out that you don't care, that is not the objective of DG investing. You are seeking a stable, and growing source of income from equity.
Yet when I frame that position as "total returns aren't supposed to matter to DG investors", you don't like it. Interesting.
So, do you really have a problem with my original sentiment "Calling dividends inside money, or old money, or house money allows you to ignore whether you can allocate that money in a better way. If you feel that investing it in something that is not a bargain because it is more trouble than its worth to do otherwise, that could be a wise decision. But an investor should force himself/herself to make those conscious decisions or risk becoming complacent."
A Canary In Real Estate's Coal Mine [View article]
Ha ha ha. Yeah, it feels like I have that power too!
TR
A Canary In Real Estate's Coal Mine [View article]
As an author, I only wish I had the power to move the market at all by writing a pro/con article. Whether us authors have skin in the game or not, its not a pump and dump.
V/R
TR
A Canary In Real Estate's Coal Mine [View article]
That's a pretty funny turn on an old cliche. I like it, and hope to remember it the next time its appropriate to use.
V/R
TR
A Canary In Real Estate's Coal Mine [View article]
I agree with you that at least some of this rise in real estate is fueled by investors. I am a refugee in Northern California, and I live in an area with no industry, but housing prices are on fire. Wages haven't gone up, and when accounting for expenses, the new house prices exceed what the vast majority of people could afford. Most of the recent houses sold in this area have shown up on the rental market. Of course, my experience is a tiny sample size and could be a false perception.
V/R
TR
A Canary In Real Estate's Coal Mine [View article]
I can assure you that the articles written for the vast majority of us are not worth the views. Most of us are not selling books, or newsletters. Many of us do not companies backing us, or legions of twitter fans who consider us gurus. For those of us who do not have this fan base built from elsewhere, the hits, recognition, and money earned is definitely NOT the main point of these articles. I can't speak for this author beyond that, but I can say I write MY articles to receive feedback on my techniques and analysis. Generally, I receive little of that.
Sometimes, I have skin in the game. Sometimes I don't. If its a stock analysis article, I write the article as I'm doing my DD. I usually picked up the idea from a screener, and am considering the stock, but don't know whether I want to buy it or not until the research is complete. If I'm not compelled to purchase the company after the research, I'm still going to post my work. I wouldn't have skin in the game in that case, and you'd be discarding my work, as you have "TFL's".
Also, given the authors article being about an indicator and what it could indicate about the future "macro" wise, I'm not sure what position he should report on his disclosure. Maybe he has "skin in the game" somewhere in the market, or he has "skin in the game" by keeping his money in cash.
Anyways, I look forward to your article. Please keep us posted.
V/R
TR
Cooper Tire & Rubber Co.: Should Investors Load Up Or Tread Carefully? [View article]
Thank you for the kind words and for commenting. I'm taking a break from the analysis for a bit and writing a few lighter articles. If the market continues its drop, I'll be hard on the lookout for some new picks. I may have a follow up on CTB, on how I ended up trading it, since I wasn't too keen on owning it for the long run. I haven't decided whether I want to write on it or not yet.
V/R
TR
A Canary In Real Estate's Coal Mine [View article]
As I understand it from your article ABI is mainly an indicator for non residential building, or are you using it to enterpret slowdowns on the residential side as well? I can definitely see how it may signal future weakness in the economy, but not sure I follow you on how its a canary for real estate (given some of us are stuck in residential realestate mindset right now).
I definitely agree that the market is responding to weak growth in the economy with an enthusiasm that bewilders me. Still, I've never experienced a real, longterm bull market in my investing lifetime (we were calling the bull market weak from 02-07, but I guess that was just left overexpectations from the 80's and 90's). I often wonder what the great "wall of worry" will look like when the next long term bull sets in. I imagine I will be like most people, and not recognize its existance until its halfway over.
V/R
TR
A Canary In Real Estate's Coal Mine [View article]
What exactly is your critique with this article?
Perhaps you could step up and write an article discussing an opposing position.
The financial lexicon,
I don't know enough about this topic to comment much. How likely is it that this ABI dip you are writing about is simply an anomoly (since it is not far into contradictory territory as you said)? Do you have history on ABI that extends beyond 2011? I'm just trying to learn more about this topic.
V/R
TR
Is Our Corporate Tax System Irrational? [View article]
I agree with you. I don't have love or hate for them. They are entities whose goal is to make profit. I think its silly how we vilify some corporations, while deifying others. But I am enjoying the comment line so far. I hope it gets a lot more lively. I've got a slow day tomorrow.
V/R
TR
Is Our Corporate Tax System Irrational? [View article]
Oh boy. I'm looking forward to the commentary this article is going to spin. I find it interesting that you show how energy companies pay the most. I predict 10 posts claiming that pro energy company stooges compile this data, 40 different posts claiming taxes should be high on energy companies because of societal costs, and 12 posts claiming YOU are paid by energy companies to publish this.
Anyways, thanks for writing and posting.
V/R
TR
Dripping Works: A Real-World Example [View article]
"I am not sure this is a productive conversation." I quite agree.
"Whatever generalizations you want to draw about DG investing is up to you." You are too sensitive in regards to anything you perceive as an attack on DG investing. My comments weren't even directed towards DG investing, which I explicitly stated was an effective investment strategy.
My problem is with dripping, and the use of it as a shortcut for allocating resources. My problem, explicitly stated, is with the mindset that it is somehow less worrisome to lose dividends invested, or that they don't have to be as effective, as new money invested. The "house money" attitude exists outside of DG investing as well. It is not an attack on DG investors.
You seem to agree with me on dripping, even if you don't think of it in the same way. You actively choose where to put your money. Congratulations.
You can have a problem with my premise "allows you to ignore" all you want. The truth is, mental games like paper losses and house money are there to allow ourselves to avoid painful truths. This has been established by studies conducted by Daniel Kahneman.
None of my statements were meant as an insult, so please don't take them as such.
TR
Dripping Works: A Real-World Example [View article]
You are a veteran of 2001 and 2008, and so am I. 08 was a terrible time for me both investment wise, and otherwise. Some of my best "investments" were terrible, but were doing great prior to 07. Then they began to crash, and I held on because they'd always come back before, and I wasn't really taking a loss until i sold them. I ended up selling many positions though, when I dropped the "paper loss" attitude, and the positions i picked up with my remaining money were much better, because I used rational thought to pick them rather than rely on tenacity and comforting mental tricks. I got real capital losses to offset my significant capital gains coming off the bottom. I more than tripled my money since 09. Many have done better, but I'm just fine with my returns.
The reason not to bail when everyone is panicking is because your investments are steals at market price and are sustainable businesses, not because they aren't losses until you sell them. May I humbly suggest that you learned the wrong lesson from 08 if you do not already know that. I hope you don't ever have to learn the lessons I did.
I'm done taking your valuable time up on this board. Behavioral biases cost people much more money in investing and trading than any other factor. Avoiding these biases has a much bigger impact than choosing how to calculate YOC, or what P/E to use when screening etc. If I haven't successfully explained why such thought processes are potential traps, then I probably won't succeed with further posts.
Good luck to you
Todd
Dripping Works: A Real-World Example [View article]
Aversion to loss is a behavioral bias we are all subject too, no matter how intelligent we are. Viewing a drop in stock price as merely a "paper loss" and not a real loss, is by definition, something we tell ourselves to avoid the pain of loss. When used to ignore the daily meaningless fluctuations of a stock, its somewhat helpful. When used to dull the pain of a steep drop in price, it is destructive. That mindset allows people to avoid concluding with finality that they made a mistake. "Its only a paper loss" is usually a prayer that things will start to go ones way. Its seldom a phrase followed by a rational thesis on why any given company is worthy of investing in.
Dripping Works: A Real-World Example [View article]
You could look at stock holdings like each is a car wash, but in some ways, its more appropriate to say the entire portfolio is a car wash. In my proposed example, you are saying that all money earned from car rinses should be reinvested in car rinsing equipment, and all money earned from car waxes should be reinvested in car waxing equipment. IMO, this is a more accurate metaphor because in my example your choice of where to reinvest your profits is driven not by what has the potential to earn you the greatest return, but simply the source of the revenue.
V/R
TR
Dripping Works: A Real-World Example [View article]
My response was meant to be somewhat ridiculous, but maybe I over did it. I'll try to communicate in a more effective way to you in the future.
First, in your original reply to my post, you chose to play semantics regarding "new money". The point of my original post was that one should make a deliberate decision on whether to reinvest or not based on whether an asset is the best source of cash flow available to you. Thinking of money as the house's money (that's a gambling reference, if you aren't familiar with it) is not helpful in that mindset.
Your reply to me did not refute that. You chose to justify it as "old money" since its part of the return of your original investment.
My tongue in cheek stripper reply was addressing that. I asked, in essence, if you throw the dividend away, is it as useful as reinvesting it in something that produces cash flow. I assumed you would say no. If so, why is it better to invest your cash in something that produces less cash flow than an alternative that produces more cash flow. Michael gave one reason (small portfolios don't benefit enough from a dividend pooling strategy to make it worthwhile). You did not add a reason though, when you countered with the "its not new money when i sell stock so it must not be new money now" logic.
My other point I tried to make to you is that money is fungible. If you are calling it "old money" when you invest it in the same stock that paid you the dividend in question (drip), but consider it a new investment when you invest it into a new company, then you are engaging in mental accounting. I apologize for the term "magic" to describe this act of mental accounting. Where I'm from (the U.S.) its a somewhat common phrase.
As for my final comment, "total returns aren't supposed to matter to DG investors", I'm not sure what you find so ridiculous. Were I to have come on here and posit, as so many do, that you can't beat the market with a DG investing strategy, you would point out that you don't care, that is not the objective of DG investing. You are seeking a stable, and growing source of income from equity.
Yet when I frame that position as "total returns aren't supposed to matter to DG investors", you don't like it. Interesting.
So, do you really have a problem with my original sentiment
"Calling dividends inside money, or old money, or house money allows you to ignore whether you can allocate that money in a better way. If you feel that investing it in something that is not a bargain because it is more trouble than its worth to do otherwise, that could be a wise decision. But an investor should force himself/herself to make those conscious decisions or risk becoming complacent."
Todd