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On speculation, bubbles, et al. November 24, 2008

Posted by shaferfinancial in Uncategorized.

For the last six months here in Pinellas County, single family homes have lost 1.8% of their value.  Nothing to be happy about, but then again it is better than the 20% loss in value that 2007 brought us.  Foreclosures are still running high, and I expect little improvement over the next 6 months because of the job losses.  Speaking of which, job losses have slowed down in Pinellas County too.  And there is one area that has not slowed down, health care.  Frankly, I think we have wrung out the speculative bubble in this area and now will have an orderly recession followed by recovery.  I believe Florida will be among the leaders out as we were early into the whole mess.

The stock market has dropped close to that 50% mark I felt it might hit (in a previous post).  The emotion is still strongly bearish, so I doubt if a market recovery starts now.  Remember the market is running on pure emotion, untethered from any real evaluation like profits or cash flow.  Is this a sign of capitulation?  This too will change, but with the bailout of CityGroup, I doubt if we see that anytime soon.  But, we can honestly say that the real estate bubbles and the stock speculation is behind us.  This is a good sign for an impending recovery.

Warren Buffett has publicly stated he has no idea of what the stock market will be doing 6 months from now or even a couple of years from now.  But he does think that the stock market will recover and start representing value in the future.  Who wants to disagree with him?  Last week you could have picked up many good, solid companies at prices lower than anytime in the last decade.  Were you prepared to do this?  Frankly, I screwed up and was not as prepared as I should have been. I did buy some more of Brkb and HCN over the last couple of weeks, but really would have liked to been in position to buy much more.  I have a lot of money involved in real estate development right now, that is not liquid.  Oh well!

Bottom line, speculation and asset bubbles, have happened quite often through history.  It is best to know your finance history, to become a better investor.  I have learned a valuable lesson about having liquidity available for times like this!

Remember what has produced wealth for folks in the modern era.  Real Estate and niche businesses.  I doubt that will change anytime soon.  Remember, ultimately a stock price will reflect a businesses profits and cash flow.  Learn how to do fundamental analysis on any investment.  Concentrate your investments in areas that you are willing to spend a few hours a week keeping up on.  For me its real estate, Berkshire Hathaway and HCN (A health care REIT).  I am also keeping my eye on a couple of other companies, for an option trading strategy for next year.

Stay strong, I can start to smell recovery!



1. Gary Mills - November 25, 2008

Absolutely right on the opportunity to buy stocks. Particularly, HCN which continues to show intelligence in it’s leadership and a solid financial footing. I appreciate the thoughts.

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