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PUNDITS AND EXPERTS: ARE RIGHT--FIFTY PERCENT OF THE TIME (AT BEST)

by: peter prodoehl

"Analysts expect..."

"Wall street insider says hold on..."

"Morgan Stanley economist downgrades stock..."

"Chief economist for NAR expects market to bottom by 2007..."

"Nancy Grace says man needs harsher punishment..."

"Moody's downgrades stock to AA rating..."

We can't escape them.  They're on T.V, newspapers, internet and airport TV's.

After keeping a close ear on them (real estate and stock market analysts) the last five years I judge that they have a fifty percent chance of being right.   And I'm being generous.

Reality is we only have twelve hours of productive time (outside sleeping, eating, pit stops) and it is hard to read everything we need to know to make the best decisions.  So we depend on other's opinion--anywhere from should we watch Star Trek to when is the best time to buy a house.

So I'm not hating on pundits.  I'm offering a word of caution.  Be careful.  They're not as smart as they look.

Question everything.  Not for argument's sake but for understanding (illumination).

And you will go far.

The reason why we believe easily

superb photo by: jamkyleseyes

I was tempted to use 'gullible'.  But we're supposed to believe authority.

I'm talking about real estate reporting.

When it comes to real estate, people are easily swayed.  You have the T.V, newspaper, uncles, opinion websites--all clamoring for our ear's attention.

I've been following them the past three years, and from what I've heard them say and what transpired, 80% are bunk and disappointingly late (mainstream news being #1).

I sound like a madman, I'm aware--but what really gets to me is that thousands of people look to the news for advice and yet these networks are not doing their job right.  I don't expect them to be perfect in their research / predictions, but they need to do their homework in a more efficient manner.

And people believe the news because we're supposed to, right? Well, back then we can, now I'm not so sure anymore. 

But the question is how can we protect ourselves from being financially hurt by misleading news and experts?

My solution is very simple--get to know the market for yourself; median price, and supply & demand.  That's not too hard right? I don't think it'll cost yo u more than an hour.  But the rewards are magnificent. 

Get to know the market, you'll get the best advice.

What we can learn from the madoff whistleblower--Harry Markopolos

superb photo by: Danille Greene

"I firmly believe that any man's finest hour, the greatest fulfillment of all that he holds dear, is that moment when he has worked his heart out in a good cause and lies exhausted on the field of battle - victorious."

                                                                                -Vince Lombardi

Harry Markopolos was assigned by his boss at Rampart Investment Management to learn how they could match Bernard Madoff's double-digit returns.

Instead he found that the "world's biggest hedge fund is a fraud".

I first read about him yesterday while I was browsing through wired magazine.  And one word that kept coming out of Markopolos' mouth was "rigorous"--how this has escaped out of our work. 

I was at my $500,00 listing last week and one of the kitchen cabinets had an ugly, white paint drip stain; this was put into my attention by the tenants, "we've lost pride in the quality of work" she whispered.  

Harry Markopolos, an ex special operations major in the army reserve, waged a ten-year (TEN YEARS!) crusade to unmask Mr. Madoff as a swindler was so frustrated with the regulator's refusal to listen that he offered to go in disguise and undercover to gather evidence.

"Each of us feared for our lives," Mr Markopolos said. "If he'd have known my name and known he had a team tracking him, I didn't think I was long for this world."

Gentle reader, do you want to know how long it took for Mr. Markopolos to realize Mr. Madoff's purported investment returns were impossible? Five minutes.  And ten years to dig up evidence.  But he knew right off the bat that it was impossible for Bernard Madoff to net his clients 10% year after year--bull or bear market.

Can you blame the guy when he clamored for the senior officials of the SEC (securities and exchange commission) to be sacked, "the SEC staff now is 3,500 chickens, and we need to get some foxes in there," he said. The organisation continues "to roar like a mouse and bite like a flea".

Friends, and this is the first time I'm going to say this, five minutes is all we need to get ahead in the Reno real estate market.  Check median price, supply and demand--and you'll be ahead of the 80% of the other buyers/sellers.  By studying these, the market will be clearer--making your investment decisions sharper.

And just like his journey, it can be lonely.  Many people settle for second hand opinion and even encourage you to do the same.  Don't listen to them, it's not hard to find the raw information yourself ("5 minutes").  And if you want to dig even deeper, that's even better!

If you do this, you will be ahead by leaps and bounds.

Saying "NO" even if it means getting fired

I was reading an article on Investors Daily. 

Citigroup's stock price is $1.50.  Unbelievable.

If you told me a year ago that Citigroup and Bank of America's stocks will be close to nothing, I would probably say "and the moon is made of cheese".  I mean these are the financial behemoths of the world.  They're just too big to crumble.  Truth be told, these companies are long deceased if not for the billions of dollars our government showered them. 

But lambasting these companies is not what I'm writing this for, we have too many reporters doing that already.  Like it's helping anybody--you should've reported this a long time ago! Where are the Carl Bernstein's and Bob Woodward's of today??

One of the saddest days in the history of mankind is when mainstream news started to follow the pattern of the tabloids.  When watching E! news daily wasn't all that different from our typical 8:00 PM news program--pregnant with hype and sensationalism.  Leave those things to the showbiz guy who has an irritating mustache.

Sorry, I got carried away.

I was watching a special report on the roots of this financial crisis.  What struck me is that these people knew  this was going to happen. Many said their gut said something like this "hey, this can't go on forever, what are you going to do about it?" Some had the good intention of putting a stop in giving these crazy loans, but they just could not. 

They said they didn't have a choice.  If they weren't lenient in lending money, five other companies will be.  And the business will just swing to the competition--business kapoof.  

I sometimes wonder... are their still brave souls out there who will stand up for something they believe in even if it means losing your job or your company? The banking industy's version of John Wayne without the horse. 

"Where have all the cowboys gone?" Are the heart cries of damsels in distresses in main street. 

This is not just a question for "those" people.  This is a question I have to face for myself.

At the end of the special report by msnbc, Alan Greenspan uttered perhaps the most terrifyingly truthful statement of this whole crisis "you know Jim, the sad truth is, years from now, you're going to have this same exact interview." 

"it is almost impossible not to see the Reno real estate market bottom if we're looking at the market"

"keeping a close eye" Superb photo by: Tim Ellis

That's the clincher "if we're looking at the the market". 

Just to be clear, the Reno real estate market hasn't reached a bottom yet.  It's not to say that all markets are in this category.  There is one that looks like it's headed for a bottom: South Reno under $250,000.

It is almost impossible not to see the Reno real estate market bottom if we only look at the market.  People have opinions of what they want the market to do, or what they hope it will do.  But the only thing that matters is what it is doing.  And if we follow that, then it's hard to go wrong.

What do I mean about this? And you may be asking yourself "what do I look for in a market bottom?"

Units sold (demand):

*LTM VS PTM= last twelve months vs previous twelve months

(click image to enlarge)

*Demand leads a market bottom.  Meaning, even before prices reach a bottom demand will have to go up consistently.  More demand means more people wanting the same thing.  Offers will meet the seller's asking prices.  Hence, equilibrium of prices.

Median Price:

(click image to enlarge)

*notice the median price is still in the negative for Reno,Sparks and Carson.  Once this goes into positive territory then we know the market has indeed bottomed.

As you have probably noticed in this post, learning about the Reno real estate market is not that hard.  And a little bit of research will go a long way in helping you gauge the health of our market. 

Keep a close eye on what the market is doing, it will pay handsome dividends in the end.

There's no easy way to get around this

"bittersweet" superb photo by: P.J McAdie

I have a question for you.

And I need is your honest answer.  Have you ever stood in front of your microwave and impatiently pressed the open button at right about seven seconds?

Delayed gratification--not the most popular subject. 

Anthony Bourdain, the wildly followed rebel travel t.v host--one of the rare products of the tube worth giving your hour to.  And why? Fanatical attention to details.  You'll never feel guilty for putting down your book to backpack with him weekdays at 10pm.

It's not easy to find the Bourdains out there, the ones who refuses to settle for good enough.  Especially in our real estate industry.  

This market downturn feels like your high school physics teacher who won't let you pass until you give everything you have. And many times I catch my mind and my body grumbling, "is it even worth it?" "Take the easy way out." "You don't have to deal with this."

But there's no turning back.  The ship has left. 

And you know what? It feels achingly good.  Bittersweet. 

"Do your worst, but I'm here to stay." 

 

Reno home Investors: Keep a close eye on the boy who cries wolf in order to win in the Reno real estate market

Super photo: clownafobier

The lessons I've learned through the story of the boy who cried wolf did not end after I turned eleven.   

Life, as part of the journey is not lacking in shady characters.  Some are deliberately willing to hurt, while others are just sincerely wrong.  I personally think the latter is the more dangerous. 

Observing the Reno real estate market for over half a decade now has taught me some valuable lessons.  People are quick to cry wolf on the market, "buy now, sell now, now is the time to invest!"

For the past two years I've personally heard real estate professionals confidently say that, "the Reno real estate market has bottomed."  Not surprisingly, they were wrong.

And the startling revelation is we usually choose other person's opinion and advice than do the work ourselves.  Especially if it's something we know little of--financial investments. 

"The common people of America display a quality of good common sense which is heartening to anyone who believes in the democratic process."

                                         -George Gallup, Founder of Gallup Poll

I'm not suggesting that we become an isolated-DIY-person.  Far from it.  Quite to the contrary,  gather as much information as you can--be inquisitive.  Get all sides of the story. 

For example:

If you're a first time home buyer in Reno, talk to an aggressive investor who thinks the world of flipping homes but also talk to that older fellow who believes in paying off your home in fifteen years. 

Your goal is not to follow one advice.  The goal is understanding.  

When you have done your homework of understanding for yourself what's happening, you'll easily pierce through the b&%sh--it.

And here's my promise:  "It ain't that hard."  It really isn't.

Start with the basics--Reno real estate supply and demand, Reno Foreclosure reports, Reno real estate in the last six months

..."And life will become a romance"

 

"The common people of America display a quality of good common sense which is heartening to anyone who believes in the democratic process"

Superb picture by: trythinksmart

"The common people of America display a quality of good common sense which is heartening to anyone who believes in the democratic process"

                            -George Gallup, founder Gallup poll

The past four years in the real estate market has been a roller coaster ride.  The Reno real estate market reached it's peak in July 2005.  "Gradually" transitioning to "rapidly" by the start of 2007. 

I had the privilege of seeing it all happen--court side seat.  When I read the above quote I couldn't help but look back at our real estate market and test this controversial quote by the brilliant George Gallup.

A question came into mind:

"Are we really smarter than what we think?"

One thing is for sure, when it comes to investing the vast majority of people are more inclined to doubt themselves than to trust our instincts.  That's why investment advisors  are such a big hit in the last twenty years.

Warren Buffet said:

"Wall Street is the only place that people ride to work in a Rolls Royce to get advice from those who take the subway."

I think we are smarter than what we think.  True, the public is also easily swayed by each other--sheep mentality.  But that does not represent the power of the individual.

From what I observed in the last four years, I think the individual's own decision making--if we are truly honest with ourselves--will ultimately be more profitable than just having blind faith in the media (notoriously late), real estate/financial experts (usually biased) and even people close to us--though good intentioned--could be sincerely wrong.

This is an article by Gallup poll on April 30,2007

Investors also worry about the Residential real estate market

This month, 7 in 10 investors say they believe conditions in the residential real estate market are getting worse nationwide, not better -- about the same as the 72% reported from March, but up from the 63% of investors who felt this way in February. Similarly, 56% of investors say conditions in their local community's residential real estate market are getting worse, not getting better -- about the same as the percentage who held this view in March (58%) and February (56%). Thirty-eight percent of investors rate conditions in their local residential real estate market as "good or excellent" in April, while 44% rate conditions as "fair," and 17% rate them as "poor."

"Experience: the most brutal of teachers. But you learn, my God do you learn"

Superb photo by: maraculio

"Experience:  the most brutal of teachers.  But you learn, my God do you learn"

                                                                                     -C.S Lewis

I'm sure you've heard of it.  It has grown in popularity especially in the last ten years. 

New age investment seminars love to preach it.  Robert Kiyosaki with his Rich Dad, Poor Dad books regularly speak of this:

"Leveraging other people's money." 

Basically, it's when we use investor's money or the bank's in hopes of gaining some future profit .  The best example I can think of is when we take on a mortgage to buy a house. We put down 15% to buy a $100,000 home and the bank provides for the difference ($85,000).  Of course, as we all very well know, we pay the bank interest.

But what if we use this concept into something intangible but as profitable and without paying a 6%/year interest.

"Leveraging other people's experiences."

But how do we learn from other people?  We take time to find and screen them and listen to them.  But believe me, it is worth it. 

If not for a God-sent, seventy two years old, charming and sometimes cranky man named Dan Wyatt I would have failed miserably in my investments back in 2006.

Dan graciously warned me about what was about to happen in the Reno real estate market.  He just didn't  tell me, he also showed me overwhelming evidence  to back this up.

We all know what happened after 2006:  market tanked, hundreds of billions of dollars lost by millions of people.  Though I lost thousand of dollars I could have easily lost four times more--bankruptcy was just around the corner.

This is one of the main reasons why I started this blog.  We needed to learn from other people who has been there and done that.  For the truth is, none of us can be Peter Pan, there just isn't enough time for us to learn all the things to learn in this world.

So how do we start?

Here are some things that has worked for me:

• Ask around who has been successful in their real estate investments.  Check their history, ask for second opinions from other people.

• Be warned that they may not be as cordial as you might expect (at first).  I found out that most people who have a lot of knowledge to give don't necessarily are the most friendliest.  But once they sense that you really want to learn.  They would be more than happy to share their experiences.

• Don't just call them when you need advice; build a genuine friendship.  Send them cards on their birthdays.  Tell them how much you appreciate the time they are giving you.

• Find someone who does not have a conflict of interest with what you want to do.  Example: insurance people,real estate professionals, mortgage adviser etc..

• Don't expect to readily agree with what they have to say (at first).  With our generation bombarded with the latest fads, hype and fast food way of thinking it may take time to adjust to their way of thinking--usually marred by hard work and sacrifice. "Everybody wants to ride, nobody wants to drive."

• Don't be afraid to shoot for the starts.  If you admire someone who may be well-known and financially respected and lives in the same city--find a way to reach them.  Genuinely tell them that you want to learn from them.  Send them a card with fruits at their office (asking for one hour lunch).  It works.

And once you find them.  They will be a like a pot of gold. I still meet Dan on a regular basis and our friendship has grown much more than talking money.

I hope you find one too.

The One Million dollar question

Excellent photo by: labspics

I was looking over some new Reno real estate statistics from Nevada small business' website (for those stat heads out there, this is heaven!).  I was researching for a blog topic.  To no avail.  The creative juices are not cooperating. 

Instead...a thought came along:  A new kind of real estate agent.

This present real estate crisis forced us in the business to take a good look at ourselves and genuinely figure out how we can be better at our profession.  Because we will be weeded out mercilessly if we don't. 

It's beyond marketing or advertising.  Though it's vital for us agents this new change is deeper-- skin deep.  I realize even at the proliferation of the internet age, Real estate agents will always have a job.  Well, that is we do our jobs right.

Through this blog I saw how hungry people are for information.  Information that can be understood, not complicated jargons. 

People are also craving for someone who will guide them with integrity.  We will never admit to it, but we need each other.  People need people to help them make the best real estate decision. 

But the chasm happens between hello and signing the contract.  Can they trust us agents in the biggest financial commitment they are taking?  Do they believe that we have their best interest at heart?

That's the one million dollar question.