I thought the RE analogy held up ok, actually. I just wanted to add a couple of things, as usual.
Where the analogy does break down is that RE is not one market; stocks to a large extent are. By that I mean that an investor -- limit the example to U.S. investors since it is tougher to invest internationally -- can pick any stock, and need not limit him(her)self to one stock or even one sector. That is ultimately what tends to pull valuations into a range of values, and provides the theoretical basis for fundamental analysis. A RE investor -- at least someone buying a house to live in -- is limited to where their job is and sometimes other factors, like climate, family etc. For example, I live near Chicago, I think Dave said that he did too. Believe me, no one lives in Chicago because of the climate, or because it's beautiful. It's a good city in some ways, but it's jobs that bring people here and keep them here. And keep the housing values up by Midwestern standards.
But I digress, again. I don't think that in stocks you will find very many examples of companies who remain popular with investors way beyond the range of traditional valuation measures BECAUSE there are so many alternative investments. MSFT and CSCO are pushing the envelope of those ranges right now -- and probably deservedly so (but CSCO WILL pull back a little, just watch!). YHOO isn't even on the same planet by those measures. So if the growth falters or any little thing goes wrong, the risk is going to turn out to be overwhelming to many, I fear.
MAD DOG
(Have to go soon -- despite my remarks about Chicago's climate, it's about 70 degrees out today, and the kiddies and I have Xmas decorations to hang outside. It'll be below freezing again in a couple of days.) |
