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Takes Courage

Dennis Friedman, 2:22 am ET

I DROVE BY the condominium I sold last year. It was bought by a young lady in her early 20s. I noticed a for-sale sign hanging near the front entrance of the building.

Out of curiosity, I looked up the unit for sale online. It had the same floor plan as the condo I’d sold, but was located on the first floor in the back of the building. The condo I owned was located on the top floor facing the street—a much better location.

The asking price for this condo was $466,000. I sold my unit in June 2020 for $380,000. At the time, COVID-19 was wreaking havoc with our lives. I received two offers, both below my asking price. I made the same counteroffer to both parties. But only the young lady responded to my offer. The other party told my agent they were no longer interested, because they thought real estate prices were going to drop.

We all know real estate prices didn’t go down. On the contrary, they went through the roof. It’s yet another example of how difficult it is to predict what real estate—as well stocks and interest rates—will do in the short term.

Back then, even CEOs of major companies didn’t get it right about the economy. Automakers in 2020 thought there’d be a deep recession, so they cut back production and cancelled orders for supplies, such as semiconductors. Meanwhile, car rental companies sold off their inventory.

What seemed like a reasonable decision at the time proved to be a huge mistake. The economy turned out to be entirely different from the one they planned for. Demand for automobiles is actually higher today than before the pandemic.

I told my wife about the asking price for the condo. She said, “The young lady bought before real estate prices took off. It took courage when the market was rattled. Good for her.” Indeed, it sometimes takes courage to invest our money—and the more courage that’s required, often the better the opportunity.

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macropundit
macropundit
5 months ago

True, but the young lady might have been no wiser but needed a place to live worse or had more money. It might not have been wisdom but circumstances. Your point still holds in any case though.

Ormode
Ormode
5 months ago

On the other hand, I sold my tiny apartment in Manhattan right at the peak of the boom. I was going to ask $400K, but the real estate agent said look, there are no studios on the market within 10 blocks, let’s go for $450K. I got four cash offers in a week, and closed two months later.
My only regret is not buying stock immediately with that money. I have bought a lot of stock in the last four years, but holding out for the bottom price doesn’t always work.

Guest
Guest
5 months ago

Thanks Dennis. Even corporate America lacks courage. They virtually never buy back their own stock during market downturns when the share price has been clobbered even when they have boatloads of cash and access to plenty of credit. Oddly they wait to buy back shares as their stock price continues to hit new highs.

Jonathan Clements
Admin
Jonathan Clements
5 months ago
Reply to  Guest

Which tells you that perhaps buybacks are driven less by whether companies think their shares are undervalued — and more by a desire to offset the dilution caused by management exercising stock options during rising markets.

graphex
graphex
5 months ago

Not all buybacks are the same – some do think their shares are undervalued.

Guest
Guest
5 months ago

Interesting. I never considered that. But I’d be surprised if, except for the few companies where the founder still owns a significant % of the outstanding shares, the dilution from those exercises has even a nominal impact.

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