In Search of the Perfect Investment

To me, this “giving back” is normal, to be expected. . It’s not forcing me to sell or buy — prices haven’t dropped low enough to bottom fish.

Some people like to be pessimistic. Their “logic” is:

+ We’ve had ten years of strong stock gains.

+ Nothing can last forever.

+ Things are terrible. (More about this nonsense tomorrow.)

Hence stocks are going to crash.

I don’t buy the doom and gloom. I also don’t like two days of heavy losses in my tech stocks.

So you will know the doom and gloom story, here’s Investopedia today:

An ominous anniversary in financial history is drawing near, as Sept. 15 will be 10 years since investment banking powerhouse Lehman Brothers collapsed, a pivotal event in the 2007-08 financial crisis that turned a year-old bear market into a full-fledged panic of selling. Marko Kolanovic, the global head of macro quantitative and derivatives research at the largest U.S.-based bank, JPMorgan Chase & Co., has marked the occasion by issuing a dire scenario of what the next financial crisis is likely to look like, CNBC reports.

Meanwhile, the current bull market will have lasted 9 1/2 years as of Sept. 9, delivering spectacular gains during its run so far. Investors with short memories will be unprepared for the next big shock to stock prices, increasing the odds that the next crisis will be particularly severe. Meanwhile, since earlier this year, a number of well-known market gurus have been issuing their own warnings that stocks are on the brink of plunging by up to 60%. (For more, see also: Why the S&P 500 May Fall More Than 60%: Hussman.)

A particular source of concern for Kolanovic is the growing importance of computerized trading and passive investing. As long as bullish sentiment held sway among investors, both these factors helped propel stock prices to new heights. However, once sentiment pivots toward the bearish, the lightning speed with which computerized trading algorithms operate can produce massive selling pressure that may overwhelm the markets in fractions of a second. Moreover, these programs tend to play follow-the-leader, with waves of selling inducing yet more waves of selling. (For more, see also: How Algo Trading Is Worsening Stock Market Routs.)

According to Kolanovic, over the past decade about $2 trillion of investments have moved from actively-managed to passive funds, reducing the possibility that bargain-hunting managers will stem a wave of selling. Additionally, he estimates that up to 66% of all assets under management are now in index funds and quant funds, and that about 90% of daily trading volume is driven by these and similar strategies.

Noted emerging markets fund manager Mark Mobius has voiced similar concerns about the explosive growth of passive ETFs and high-speed computerized trading. He sees a growing danger of a “snowball effect” in which a small wave of selling rapidly becomes an avalanche. (For more, see also: Contrarian Mark Mobius Sees a 30% Stock Plunge.)

A plunge in stock prices is likely to cause what Kolanovic calls the Great Liquidity Crisis, with willing buyers for stocks becoming increasingly harder to find, sending prices down yet further. If the selloff reaches a 40% decline, he expects that the Federal Reserve will have to intervene, to prevent the economy from slipping into a severe recession, if not a depression. This is essentially what the Fed did in 2008-09, with its massive program of quantitative easing to combat that crisis.

With personal wealth cratering, and pension funds becoming severely underfunded, thus threatening deep cuts to benefits, Kolanovic raises the specter of the worst social unrest in the U.S. since 1968 as the result of a new financial crisis. That year was marked by rising discontent over the Vietnam War, as well as the assassinations of civil rights leader the Rev. Martin Luther King, Jr. and presidential candidate Senator Robert F. Kennedy.

You can read the rest of this panic “logic” here. But you don’t have to.

Real estate investing 101

13 years ago I bought an apartment for Michael. I overpaid. But it was 2005 and the market was hot. The location was perfect.

Since then, I’ve been renting the apartment, praying that Michael would return to New York. No such luck.

Hence I’m putting the market up for sale. If I get roughly what I’m asking I will have earned just under 5% a year. That’s not miserable. It’s better than a slap in the belly with a cold fish. But it ain’t great. and it’s about half what I’d earn if I had put the money in an S&P 500 index fund.

Here’s what I did wrong with the apartment:

+ I paid too much. I bought at the top of the market. If I was ever going to rent the place, the rent I could get would not justify the price. Latest rent shows a 2% return on the price, after taxes and maintenance.

+ I didn’t significantly improve the value of the apartment. I fixed things — like the bathrooms, windows, AC and the kitchen. But I didn’t make them “spectacular.”

+ The location was great — right on Central Park. But the apartment building is huge and there are always apartments for sale — at often desperate prices. Lots of desperate divorce sales. Must be something in the building’s’ air.

All the above is irrelevant given the goal was to motivate Michael back to New York City after his two-year sojourn in business school. No such luck.

As I’ve written before, there are two keys to successful real estate investing:

+ The price you pay. It should be a “bargain.”

+ The property should have “hair,” which you have a plan for fixing.

Anyone want to buy a nice two bedroom apartment on Central Park West? Good price. Some hair.

Price of bitcoin drops after Goldman Sachs drops plans for a trading desk

Rosie spat our her pills

I was dispatched to buy these:

So who made these beauties? There’s a fantastic pet stock here?

No such luck.

They’re made by Mars, the sixth largest privately-owned company in the U.S.

Keep looking.

You need to see this

The man is about to turn 69. He remains a bundle of positive, optimistic energy.

Susan and I saw it last night. He was fabulous. For more, read his Wikipedia bio. Click here. Buy tickets here. 

Crazy Poor Middle Easterners.

The Middle East could prosper if it would put its past behind it. An article by Thomas Friedman of the New York Times.

Fascinating.Read it here. 

This is meant to funny as all get out

I’m told the movie Crazy Rich Asians is hysterical.

Harry Newton. I love my friends at the IRS.

I overpaid a little. They adjusted a little. And bingo. Full marks for their creativity: