Posted by Kev (NC) on March 16, 1999 at 21:57:41:
Ditto here! By the way, why are you & I in the newsgroup during tax season?
Kev
Is Anyone In Here Out Performing The Stock Market In Here? - Posted by Nick
Posted by Nick on March 15, 1999 at 20:50:20:
Hello;
Is anyone out performing the stock market in here?
The average return on investment over the long run in
equities has been about 10.8%.
Is anyone in here beating the stock market average?
By the way, Burton Malkieal, the proponent of the
random walk theory and world renowned academic scholar
(he won the nobel prize in economics) states that it is
impossible to beat the average return that the stock market
has given using any other investment vehichle.
Random Walks - Posted by Jeff_Dallas
Posted by Jeff_Dallas on March 16, 1999 at 18:56:29:
I agree with Jim.
The key premise of the random walk theory is that markets are perfectly efficient and that all investors in a particular market have access to the same information. Even among academics, it’s widely accepted that having superior market knowledge causes Malkiel’s theory to disintegrate
I think it’s debatable how efficient securities makets are, but there is no question that real estate markets are very imperfect. If you doubt this, try converting a piece of RE to cash within 1 day at “market price”. If you are not able to do this, that essential premise of efficient markets has been destroyed
Most of the academic financial models and theories including “Random Walk”, CAPM, “Arbitrage Pricing Theory” etc… are really irrelevant to RE where you can take advantage of both the imperfections of the market and your ability to obtain superior knowledge.
Those That Can, Do… - Posted by JPiper
Posted by JPiper on March 16, 1999 at 16:05:01:
Nick:
I’m going to assume that your question is a serious one?..that is, not one designed to take a few pot shots at the subject of real estate. However when I assume your question is serious, I then wonder why you have evidently read such a small portion of this site?.or perhaps you would have answered your own question. I even begin to wonder how much you truly understand about “Random Walk” inasmuch as you have gotten it’s author’s name wrong?.Burton Malkiel.
As it pertains to Wall Street, you might be interested in taking a look at one of the most famous investors in history??Warren Buffet. Buffet has managed to stack up around $30 billion or so starting with next to nothing. I’m sure you can find his compounded rate of return somewhere, but suffice it to say that it exceeds 10%. The fact that even one man exists whose rate of return regularly exceeds that predicted by the random walk theory brings the whole theory into question. Fortunately, however, more than one person exists. John Train has written some excellent books on some of the “investment masters” who have compiled returns well in excess of random walk predictions. If you truly are interested, these books would be good for you to read.
As it pertains to real estate, here’s a few possibilities for you to ponder. If I were to buy a house for $80K all cash, that was worth $100K?..and then resell it what’s my return? My calculator says 25%. Now what if it took me only 6 months to resell the house? Now my calculator says 50%. Now lets assume that I borrowed the banks money by accessing a credit line, what’s my return? Perhaps you and Malkiel will let me know the return on this type of transaction.
One of Malkiel’s key assumptions is that markets are efficient. But it doesn’t require a college education from a prestigious university to understand that the real estate market is not efficient. If it were, I would be unable to make a living in it. That’s what the above example illustrates?..inefficiency. A motivated seller who has to sell quickly for some reason may well sell at prices INSURING a profit to the buyer. It’s called making your profit going into the deal.
One of the keys to beating a “random” rate of return is knowledge. Warren Buffet didn’t accumulate billions with no knowledge, by just flopping some money into the stock market. Rather he studied under one of the acknowledged masters at the time?..Benjamin Graham?..and then tweaked this information to better suit his own personal style.
In the real estate business, you can achieve spectacular rates of return. In fact, you can achieve incalculable rates of return. But you’ll never do it without knowledge. And you’ll never do it without injecting yourself actively into the equation necessary to produce those rates of return. And whatever knowledge you do obtain will undoubtedly need to be tweaked and tempered by experience.
My suggestion to you is that rather than reading about random walk theories that you spend some time learning how to make money. And remember, those that can, do. Those that can’t, teach.
JPiper
Some people are to smart for there own good! - Posted by Jerry Greer
Posted by Jerry Greer on March 16, 1999 at 16:02:10:
Nuff Said!
Outperforming? - Posted by Sean
Posted by Sean on March 16, 1999 at 15:14:40:
I guess that depends on your definition. Am I regularly finding real estate for sale with a 10.8% or better capitalization rate? No. On the other hand, considering that it’s not difficult at all to get an 80% leveraged real estate portfolio going, we are getting other people’s money at 7% interest and shoving it out the back door at 8 or 9% interest for an effective yield that is better than 10.8%
Example:
$100,000 rental property that has 9% capitalization.
$20,000 down by you.
$80,000 from seller at 6.75% interest.
Property produces $9,000 a year.
You pay $5,400 in interest a year.
Profit is $3,600 annually on a 20,000 investment.
That’s an effective yield of 18 percent.
No - highest return only about 2.5%! - Posted by Redline
Posted by Redline on March 16, 1999 at 12:40:28:
This is like “Deja Vu all over again” with this guy!!
TWO WORDS - Posted by JHyre in Ohio
Posted by JHyre in Ohio on March 16, 1999 at 07:13:28:
Inefficient market. The stock market has a billion people- half of them con-artists (aka brokers) following it with way more inside savvy than John Q Public. The stock market is not perfectly efficient (ask Warren Buffet- oh, wait, he’s an insider), but it is WAAAAAY more efficient than the RE market, so bargains disappear VERY quickly in stock market. It’s a heck of alot easier to be an insider with real estate- in otherwords, networking here in Findlay is much easier than doing the equivalent with CEO’s and Wall Street. What works in the stock market works even better with real estate- most of what you see on this site is a variation of Benjamin Graham/Warren Buffet value investing. The emotions that unpredictably swing trillions in the stock market (fear and greed) are present on a micro level- in every deal- in real estate. Micro is controlable (see Joe Kaiser negotiate), macro is not (this is why brokers work in tall buildings with big windows).
Also, real estate is generally less volatile than the stock market and more predictable in how/when it shifts. As they say, they ain’t making any more of it. Plus real estate has better tax treatment than stocks (couldn’t resist that one).
John Hyre
He’s doing it again…ARGH!! - Posted by Jim IL
Posted by Jim IL on March 16, 1999 at 24:49:37:
Nick,
If I’m wrong, I apologize in advance.
But, I seem to recall a guy named “nick” starting a “Flame war” on this board by saying that the good returns here reported must be false, and something about formal education being everything. Also, something about College professors? They all say it cannot be done! (at least not in my area, LOL!!)
Please, if that was you, QUIT IT! You are wasting valuable space!
If not, stick around and learn something. These people here are GREAT and knowledgable on REI and many make a TON of money doing it.
They are the most unselfish group of people I have ever had the pleasure of meeting. (yup, I met many, went to the convention)
Have a nice day!
Õ¿Õ
Your on the right track - Posted by Dirk Roach
Posted by Dirk Roach on March 15, 1999 at 22:59:46:
Hi Nick,
I think that you’re on the right path to gaining financial freedom. You’re asking questions. Yes many of us here out perform “traditional” stock market returns many times over.
Personally for me, I believe Real Estate Investing is a better avenue than the stock market.
A key bit of advice I would give is read, learn, do, and then laugh.
Learn to calculate yields and such and then start punching in numbers from given scenario’s (both in Real Estate and the Stock Market).
No matter what anyone states here, you will not be convinced unless you see the results yourself.
Also I believe you’ve misunderstood Burton Malkieal.
He was speaking in the financial, “traditional” realm. And his statement whcih you paraphrased was taken out of a article in which he was slamming mutual funds.
Anyhow many other area’s exist out here in the world to invest in, which much better returns than 10.3% (the actual average stock market return over the last 25 years) from art , to Real Estate, to comic books.
The thing about Real Estate is it is a limited commodity. They’re not making anymore.
The 10.3% (average return)is pretty small potatoes compared to the average method of investing which many here have done (and many the world over) have been doing since the dawn of civilization.
I recently had a conversation over lunch, with two very seasoned investors regarding one a notorious flip in American history, the Louisiana Purchase.
Anyhow keep up your inquisitive mindset and learn the basics, then you will not only have your answer, but also the tools to be financially free.
Good luck
Dirk Roach
Re: Is Anyone In Here Out Performing The Stock Market In Here? - Posted by Rob FL
Posted by Rob FL on March 15, 1999 at 22:03:25:
This guy must have really missed the boat. Finance companies charge 18-21% every day on 2nd mortgages. And what about car title loan companies. My goodness here in FL there was a big article in the newspaper recently that the average ROI is almost 90%.
When I was young and dumb at the age of 23 I bought several thousand dollars in RE tax certifiactes at the average rate of 18% interest. They sell several million dollars worth of these in my county alone. (There are 66 other counties here in FL)
Not Again LOL !! - Posted by David Alexander
Posted by David Alexander on March 15, 1999 at 21:54:11:
Just like in the stock market when you put your(or better yet, someone elses) money in and then you get it out quickly with shares left over, your return becomes infinite. The same thing is done in Real Estate.
Maybe he was talking Buy and Hold, who knows!
Daavid Alexander
You havn’t been monitoring this site very long, have you? - Posted by Michael Murray
Posted by Michael Murray on March 15, 1999 at 21:21:30:
Goodness! You need only a few minutes reading posts, articles, and success stories on this site to figure that one out!! Please do that, buy some courses, do some deals, and you will answer your own question and probably come back to tell your own success story.
Re: Is Anyone In Here Out Performing The Stock Market In Here? - Posted by Rob
Posted by Rob on March 15, 1999 at 21:13:46:
Yes, 66% on a stock IDTC brought a 12 sold at 19 3/4
vvus brought at 2 9/16 sold at 4.25 66%
Good, but I love to try to play with real estate.
There are many things that you can do with re.
Buy it, Rent it, Sell it, lease it, Borrow against it,
and live in it.
Good Luck with your decision,
Rob
Re: Is Anyone In Here Out Performing The Stock Market In Here? - Posted by Laure
Posted by Laure on March 15, 1999 at 20:58:51:
uh, YES ! How’s infinity for a return? my average rental returns 35%
Laure
Or… - Posted by Mark (SDCA)
Posted by Mark (SDCA) on March 16, 1999 at 16:26:43:
He could take the Sunday real estate section, have his pet monkey throw darts at it and make offers at 50% of asking price on all those properties. :))