Hello Jay,
I'm addressing this to you, primarily because you are the wisest, most agile and write the most interestingly. Actually this is quite general.
A young friend of mine, the son of an old friend of mine, recently asked for advice/discussions about stocks. The young chap is at a stage a little after the beginning of his career. Suddenly I realized that the advice I'm going to give him, I might as well share with the BBR thread people. If I could start over(I'll be 79 this year so I can't start over), I'd go into real estate, rather than stocks. The return is higher and finally the attention required is quite a lot less.
Let there be no mistake about it, you can't make money in real estate without careful study of potential dangers and careful examination of the particular property. Matters like rights of way, demography of the district, soundness of the construction and the qualifications of those assessing the soundness, present and future public transportation, tax policies locally, adequacies of the sewers in a heavy rain, etc. etc. The list goes on and on, seemingly ad infinitum. At the end of the day you can make money if you are careful, keeping the leverage down. After a while you become quite skillful at all that and besides you own larger properties which you have no intention of ever selling so the decisions required get fewer and fewer.
Not so in the stock marker. One can make money in the market. Whenever I doubt this I think of the Fujitsu god that showered yen over me way back in the sixties. And the Softbank dreamy episode in which I followed Jay Chen into the wilderness where we found pots of gold. But, but, but,
there are lots of pitfalls and one must keep on paying attention over and over. Every day is a new situation. The attention drains ones time away from one's real job even from one's family who need and deserve attention. If I had gone into real estate like a good friend of mine, I would have had much more time for other things than investing and probably had a higher return.
If, as I claim, the rewards are greater in real estate, why doesn't everybody do it? I think there are two main reasons.
1. It requires big down payments up front. This can be managed if you are the saving type and/or you come from a culture where it is normal and natural for various sisters and cousins and aunts and uncles to pool their capital, or for friends to share in such starting investments. After a few years your equity is up and you can use the increased value of the first place as security for the mortgage on the next property. Of sell the first and buy a bigger, more profitable property.
2. The mutual fund industry and the brokers, nowadays often being subsidiaries of banks, have an enormous propaganda machine. "You can start with $500." In real estate you may have to start with $100,000. Mass advertisement about a good deal "ONLY 100K DOWN", would not be worth it.
I welcome anybody's reaction. I can't predict anybody's reaction except that of Maurice who will bet me that QCOM will be more profitable than any real estate in New Zealand.
Chugs,
Malcolm |
