John Philip Mason is a residential appraiser with 20 years experience and covers the Hudson Valley region of New York. He’s a good friend and a true professional who believes that all appraisers need to have a macro-economic perspective in order to be effective. This week, he gets cerebral about hot topics in Solid Masonry. …Jonathan Miller
Many of us dedicate ourselves to a regular regiment of reading in the hopes we will gain more knowledge about the various factors that impact our lives. We educate ourselves in an ongoing effort to understand and get more out of our careers, relationships, personal health, hobbies, etc. But of all the subjects we crave to fully understand, it would seem that money is near the top of the list for most of us. Now I know we are fond of saying “money is not everything,” but just look out there at the countless books, articles and shows devoted to satisfying our obsession with money and all its facets: making it, saving it, investing it and, of course, spending it.
When it comes to investing it, I find it interesting how the “information band” related to money is constantly shifting its focus from one “hot topic” to the next. Jumping every so often between a myriad of commodities, equities, real estate, and a number of other investment vehicles. Like a magnifying glass which helps us see things more clearly, it simultaneously makes objects appear larger and out of proportion with everything else around them. Likewise, in the investment world a pattern evolves into a self-fulfilling prophecy where the latest financial trend gains in popularity, only to get more attention, to be followed by even greater popularity You know the old herd mentality where it becomes impossible to tell apart the leaders from the followers? The intensity builds to the point where even level headed folks (some quite prominent) start to speak once again of a “new economy.” Where suddenly the old rules of economics no longer apply, there are no bounds to prosperity and we can all live happily ever after. No Ying and Yang. No give and take. No opposite and equal reaction to every action.
But then one day “it” changes. The clarity and distortion of our excesses becomes all too apparent. It’s as though we’ve fallen asleep with the TV on, only to be awakened in the middle of the night by the shrieking participants of the latest infomercial, “Investments Gone Wild!” Where innocent looking investments suddenly go crazy, bare their newly discovered assets for all to see and commit acts of foolery (or so I’ve been told). In an awkward instant we realize this has taken us in a direction we had not intended. What started out as a slightly indulgent act of staying up to watch a late night “B” movie suddenly becomes a frantic search for the remote. We realize the charade unfolding before our eyes has to be turned off before someone (like our wives), sees what “excessive exuberance” we’ve gotten ourselves in to.
By now you may be thinking I’ve lost my mind.
But this is how “it” happens. “It” builds up slowly. “It” gains momentum and credibility. And then “it” develops into something out of proportion with the rest of life. The “it” is the psychology of a trend. The force that makes us (or keeps us from making) decisions that go beyond the facts. Case in point, on any given day you see large, well run companies release a “positive” earnings report, only to have investors push the price of the stock in a direction that defies the facts. More confusing is that some days the psychology factor is a bantam weight, while at other times it’s more like a Sumo wrestler.
Consequently, you couldn’t give real estate away when it was cheap in the early 90’s, but by last year when price levels had increased several times over, there wasn’t enough of it to go around. Now once again it would seem that we have awoken to find the latest trend was nothing more than that, a trend. There is no new economy. Ying and Yang still have to keep their day jobs. As do most of us. (Please tell me you did keep your day job.) But fear not, for in this latest investment craze gone soft we are reminded that on average, our homes will appreciate a respectable several percent per year and even manage to stay ahead of inflation.
So in analyzing a market, yes, it’s part economics. But how much do you figure for psychology?