Tuesday, November 30, 2004

Terrible Investment Strategy

Dear Reader,

Please do not fall into this trap.

It seems people are betting their entire future on the housing market. This is not smart investing like some of the individuals in the article claim (Mr. Derdzinski). Mortgaging your house for 3-times what it is worth is a dismal strategy in fact. You are relying on luck rather than astute analysis.

Doesn't this kind of remind everyone of the past equity bubble we are still working through? During the now apparent bubble, my geeky investment contacts and I would joke about the new homes being built that were being haulted because the owners were tying their loans to the inflated equity market...mainly Level 3 in Omaha. The stock price crashed and building stopped. This left many with half built million dollar homes.

So, for those of you who missed Mr. Greenspan's words in his past few speeches, here is what he said (paraphrased). He told investors that rising future rates have been telegraphed to those who care, and anyone who ignored his claim will be left with many fewer dollars.

Don't turn down free investment advice from Mr. Greenspan. Higher rates are coming. Rotate your investments to industries that grow when interest rates rise. You could even take the hassle out of that and invest in a rising rates mutual fund, as I have said before. Please don't mortgage your house to invest...pretty please.

Best Regards,

The Soothsayer of Omaha


Anonymous Anonymous said...

I've been warning about this for a long time at SWMC. Sooner or later the real estate market is going to pop and all these over debt leveraged people are going to lose their homes. There will be a wave of foreclosures and wealth will be redistributed to the ones that didnt fall into this trap.
Tom @ SWMC

10:10 AM  

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