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This tweet by Sean Sweeney is, of course, 100% true. It is also true of markets and investing in general. When everyone feels confident, money becomes available, and then returns fall. There's too much competition. But when everyone is scared and liquidity dries up, bargains emerge. Now there's very little competition.
Warren Buffett has made an entire career out of playing this paradox. It's his well-known "be greedy when others are fearful" mantra. But in order to do this, you need to be patient, you need to have the resources, and you need to have the right emotional temperament when things are in meltdown.
I am seeing this first-hand in Toronto real estate. To give just one example, development land is right now worth, oh I don't know, roughly half of what it was before (a broad generalization).
There are very good reasons for this. The value of land depends on what you can do with it, and if you can't do anything with it, then it's not worth very much. But as soon as you can once again do something with it, and clarity returns to the market, the bargains disappear.
So to find the "great deals" you have to be willing to wade into areas where most of the market is unwilling to go in the current moment. Put differently, there's money to be made when you're right about something that most people think is wrong, or when you're able to do something that most people can't do for whatever reason.
All of this is easier said than done, but I think about Sean's tweet a lot these days. It's easy to find reasons to say no right now. But here's the approach I'm trying my best to take: it's a great time to be in real estate. In fact, it's a generational opportunity. And so it's my job to find the great deals.
Cover photo by Sean Pollock on Unsplash
The word "speculation" usually has negative connotations, especially in the world of finance. That's why you'll hear people deride "condo speculators" and talk about things like crypto as being rat poison. Buying something with the sole hope that someone will pay more for it later is viewed as a negative act.
But is this a fair characterization?
Speculation is fundamental to how markets work. It happens when people bet on some unknowable future rather than on present fundamentals. This is an important feature because it's how new technologies and new business models get funded. Without it, we'd only ever fund what is knowable and what already exists.
This doesn't mean that speculation won't lead to failures — by definition it has to. It's uncharted territory. But consider what speculation has advanced along the way: railway networks, utility infrastructure, the internet, crypto, and AI, among many other things. And in the case of condo speculators, the result was that more, rather than less, housing got built.
That's a good thing.
So I think there's an argument to be made that we actually need more speculation in Canada. We need more risk taking and we need people betting on the future, even in the face of uncertainty. Because when you do that, eventually you end up creating it.
Lately I have really gotten into Matt Levine’s daily newsletter about “Wall Street, finance, companies and other stuff.” Maybe that’s how I should describe this blog: Cities, real estate, design, and other stuff.
If you aren’t familiar with Matt’s writing, here is an article that he wrote about Kylie Jenner’s recent tweet concerning Snapchat. You know, the one that wiped out $1.3 billion of market value because she revealed – using only 88 characters, I might add – that she was no longer using the app.
sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.
— Kylie Jenner (@KylieJenner) February 21, 2018
https://platform.twitter.com/widgets.js
The article was spurred on by this question:
“Would it be insider trading for Kylie Jenner to buy short term out of money put options on Snap and tweet out that she’s no longer using Snap?”
And this is the start of his answer:
Insider trading, as I am constantly saying around here, is not about fairness; it is about theft. It is not illegal to trade on your own nonpublic knowledge of your own intentions. Warren Buffett can buy stocks before he announces that he’s bought them, even though that announcement will predictably make the stocks go up.
If I did describe this daily blog like Matt describes his daily newsletter, this post would clearly fall into the “other stuff” camp. But maybe you too will find it interesting. If you do, you can subscribe here.
This tweet by Sean Sweeney is, of course, 100% true. It is also true of markets and investing in general. When everyone feels confident, money becomes available, and then returns fall. There's too much competition. But when everyone is scared and liquidity dries up, bargains emerge. Now there's very little competition.
Warren Buffett has made an entire career out of playing this paradox. It's his well-known "be greedy when others are fearful" mantra. But in order to do this, you need to be patient, you need to have the resources, and you need to have the right emotional temperament when things are in meltdown.
I am seeing this first-hand in Toronto real estate. To give just one example, development land is right now worth, oh I don't know, roughly half of what it was before (a broad generalization).
There are very good reasons for this. The value of land depends on what you can do with it, and if you can't do anything with it, then it's not worth very much. But as soon as you can once again do something with it, and clarity returns to the market, the bargains disappear.
So to find the "great deals" you have to be willing to wade into areas where most of the market is unwilling to go in the current moment. Put differently, there's money to be made when you're right about something that most people think is wrong, or when you're able to do something that most people can't do for whatever reason.
All of this is easier said than done, but I think about Sean's tweet a lot these days. It's easy to find reasons to say no right now. But here's the approach I'm trying my best to take: it's a great time to be in real estate. In fact, it's a generational opportunity. And so it's my job to find the great deals.
Cover photo by Sean Pollock on Unsplash
The word "speculation" usually has negative connotations, especially in the world of finance. That's why you'll hear people deride "condo speculators" and talk about things like crypto as being rat poison. Buying something with the sole hope that someone will pay more for it later is viewed as a negative act.
But is this a fair characterization?
Speculation is fundamental to how markets work. It happens when people bet on some unknowable future rather than on present fundamentals. This is an important feature because it's how new technologies and new business models get funded. Without it, we'd only ever fund what is knowable and what already exists.
This doesn't mean that speculation won't lead to failures — by definition it has to. It's uncharted territory. But consider what speculation has advanced along the way: railway networks, utility infrastructure, the internet, crypto, and AI, among many other things. And in the case of condo speculators, the result was that more, rather than less, housing got built.
That's a good thing.
So I think there's an argument to be made that we actually need more speculation in Canada. We need more risk taking and we need people betting on the future, even in the face of uncertainty. Because when you do that, eventually you end up creating it.
Lately I have really gotten into Matt Levine’s daily newsletter about “Wall Street, finance, companies and other stuff.” Maybe that’s how I should describe this blog: Cities, real estate, design, and other stuff.
If you aren’t familiar with Matt’s writing, here is an article that he wrote about Kylie Jenner’s recent tweet concerning Snapchat. You know, the one that wiped out $1.3 billion of market value because she revealed – using only 88 characters, I might add – that she was no longer using the app.
sooo does anyone else not open Snapchat anymore? Or is it just me… ugh this is so sad.
— Kylie Jenner (@KylieJenner) February 21, 2018
https://platform.twitter.com/widgets.js
The article was spurred on by this question:
“Would it be insider trading for Kylie Jenner to buy short term out of money put options on Snap and tweet out that she’s no longer using Snap?”
And this is the start of his answer:
Insider trading, as I am constantly saying around here, is not about fairness; it is about theft. It is not illegal to trade on your own nonpublic knowledge of your own intentions. Warren Buffett can buy stocks before he announces that he’s bought them, even though that announcement will predictably make the stocks go up.
If I did describe this daily blog like Matt describes his daily newsletter, this post would clearly fall into the “other stuff” camp. But maybe you too will find it interesting. If you do, you can subscribe here.
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