On 19 Feb 2011
If you think real estate is going lower, how do you explain this?,
0utside Party said:
In any investment, you don't want to try to catch a falling knife and make an attempt at timing the exact bottom. The method for actually making money is to ensure an upward trend is in place before making a purchase. This significantly improves the odds that your investment will make a profit in the foreseeable future.
In the financial industry, the "God" of trading methodology is Jesse Livermore. This is perhaps one of his greatest teachings. He lost fortunes and made them back, several times over. He gained much wisdom from direct experience.
An upward trend may be defined any number of ways. From a statistical standpoint, this would mean that you need to have about 6 months (based on prior "bottom" calls in this market) of upward nationwide movement in home prices, without government manipulation. Sure, interest rates may rise during this time.
However, I believe the new approach for most homeowners will be to pay off a larger portion of their mortgage up front and pay less over time, despite the higher interest rate.
In other words, Iwog may argue that the "bottom" has occured. Who cares? The "bottom" is a worthless data point from a buyer's perspective. The trend is where the money is.
What a buyer really needs is two things:
1) About 6 months of steady upward home price movement nationwide to determine an upward trend is in place (with no govt manipulation)
2) A sizeable down payment saved up to help bypass the effect of higher interest rates
Trying to time the exact bottom likely means you are also interested in timing the exact top. Statistically, traders who do this are committing financial suicide. The trend is your friend. Latch onto the trend after it is established, and then jump off when you are profitable (well before it reaches the train station).
When you see that an investment has made more money after you have sold it, take pride in this since you are following a methodology that is far more profitable than timing the exact bottom or top. Then move that money into another newly formed and established uptrend in a different investment.
This methodology greatly reduces your risk exposure. It's not my methodology -- it's Jesse Livermore's... and it works.