Friday, July 27, 2007

Intuition

I graduated Georgetown Business School at the height of the dot com boom (2000). Many of my fellow MBAs had job offers at start ups.

While the money was tempting, my intuition told me something was badly out of sync. If everything I was learning in school actually applied to the real world, then these 1 year old companies with negative cash flows should not have a larger market capitalization than established firms with a 20 year track record of solid earnings and growth.

This intuition played out right around graduation, and it left several of my colleagues stranded without a job after school.

Why the long story you ask....well it is that same intuition that led us to sell our house in 2006 and wait out the real estate cycle.

Again my intuition has been questioning the current run-up in the stock market. I didn't see how the housing slowdown could not affect the economy as a whole. They way I see it, all the equity and $$ people have been making in RE over the last 6 years was fueling consumer spending. Hence earnings at Home Depot and Lowes were the first to take a hit. Now auto makers are blaming the housing market. I think we will see more unravelling to come.

Yesterday's market correction, was small. But sorely needed IMHO.

10 comments:

Sippn said...

All that schooln' and it all comes down to gut feel and crowd psycology.

Gwynster said...

Every time boyo!

My coming to Jeebus momment was buying a pair of new Christine Louboutin mary jane pumps for $167 with shipping.

Brian said...

Yeah, I feel like Michael Chertoff (gag) with my gut telling me what's going to happen. But if you think about it, the fundamentals and book lernin do inform you, and allow your gut to override the media and 'experts' telling you how stupid you are everyday for not jumping on the bandwagon when you see the cliff coming up over that next ridge.

Steven said...

Nicely said Brian.

Even when you know you're right, it requires guts to ignore the experts.

buying time said...

It also helps when you don't have a big stake in the game/outcome.

In the current housing bubble, the local and national media rely heavily on the advertising dollars from real estate and mortgage related industries. So it is in their best interest to tell their audiences everything is going to be okay. The terms cognitive dissonance and conflict of interest come to mind.

Sippn said...

Oh contrare, BT, you do have a stake. You have a "put" in the housing ownership game, betting on further price declines.

Not saying its wrong, just clarifying.

G - watch your language, but what a deal!

buying time said...

I was mostly refering to the stock market.....who has money to invest when you have to put yourself through school?

But yes, I do have a stake in the RE market. However I'm not sure how much? We are saving a ton of $$ each month by renting. But we can afford to buy something (just not what we want). So if the market does start to appreciate again, we can jump in. That's how my entre into the blogging world got started ;)

Gwynster said...

Language?

I just find it interesting that big lux items are fealing deflationary pressure.

Patient Renter said...

"Language?"

Jebus?

Sippn said...

mary janes