Is Real Estate Actually a Good Investment on Average?
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
That he CAN live in it is misleading. He can equally live in a rental. The only value to him comes from the investment value. That humans tend to be emotional about their homes causes bad financial decisions and is actually often said to an important reason to rent not buy, buying only has a good chance of being healthy for you and not crippling your life if you can be unemotional and remember that it is just an investment option and you have to be flexible with it to not get burned.
The term "real value" in economic terms means tha you can actual use that asset in life - you can live in a house, or you can use gold as a metal...
If you compare it to financial assets - financial assets do not have "real value" - they only have financial value. If nobody wants to buy shares or bonds that you want to sell, you can't use it.
That is definition of economic term "real value" (it is not my personal term) -
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
The only value to him comes from the investment value. That humans tend to be emotional about their homes causes bad financial decisions and is actually often said to an important reason to rent not buy, buying only has a good chance of being healthy for you and not crippling your life if you can be unemotional and remember that it is just an investment option and you have to be flexible with it to not get burned.
First sentence is completely wrong.
I agree with second sentence. -
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Those are big emotional reasons why people foolishly invest without evaluating logically, yes. Absolutely.
Of course. But people have right to pay/buy things they like to own, or things they feel safe to invest. They do not have to invest in something that proves to be most profitable in the long term.
People are not hired proffessionals when they decide about their private investments. It is OK that they spend money where they like to spend it.
(I am not saying that they should not learn to invest smarter) -
@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
I suppose renting literally goes back to kings and queens - cause they owned everything, the peasants had to pay the kingdom..
Generally pretty good reasoning.
Basically, in feudal age, aristocracy lived from renting their land to peasants. In industrial age, different manufacturing businesses become more important as value (and source of income and profit) than pure ownership of land and things soon changed to capitalism (capitalism was economically more efficient than feudalism) -
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
Even Warren Buffet once said that he did not wanted to invest in IT companies because he did not understood that business.
That's hilarious because IT is just "business". To say he doesn't understand IT means the same as saying he doesn't understand business. IT involves tech, but IT itself is purely a business aspect and a part of every business. Whether his companies are IT themselves or just have IT as part of them, every investment involves IT and IT is a part of all aspects of business.
I thing most people will say that Microsoft or Google are IT companies.
And most will not say the same thing for Volkswagen, or Coca Cola.
I do not find that "hilarious", although I understand what you are talking about. -
@Mario-Jakovina said in Is Real Estate Actually a Good Investment on Average?:
I thing most people will say that Microsoft or Google are IT companies.
Yes, and most people aren't qualified to be business people. Anyone claiming to be a business person but not knowing the first thing about business is pretty ridiculous. Knowing what IT is is about as fundamental to being in business as it can get.
That average non-business people don't know business functions that basic is kind of sad, but not unexpected. The average person is pretty oblivious to the world around them. But the amount of excuse someone being in business has to not know this is absolutely zero.
Average people don't know about corporate taxes, sales taxes, tax filing requirements, accounting, bank loans and other uber basic business knowledge that we expect even entry level business people to know really well.
Ergo, he's saying he doesn't know anything about business. Which is true, actually. He's an investor, but a business man. However, it means he knows nothing about any of his businesses, including business itself. He just doesn't realize that he knows as little about all of them as he does about that.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Ergo, he's saying he doesn't know anything about business.
That's quite the hot take on Warren Buffet
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@Carnival-Boy said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Ergo, he's saying he doesn't know anything about business.
That's quite the hot take on Warren Buffet
Not at all. He never, ever claims to be a businessman. It's just people who aren't familiar with business and investing often confuse the two. Just like how people actually think Bill Gates has worked in IT when he was a software developer. For people unfamiliar, they seem like one and the same. In reality, they share relatively little but work in similar arenas.
Buffet has never had to work in business, his entire life has been an investor. It's actually well known in business (and investing) that the two careers rarely overlap simply because the ability to develop skills in one almost exclusively comes at the expense of the other. And in America especially, investing is almost (but not fully) and "anti-business" activity. That's consistently a complaint about American style capitalism that profits from Wall St. aren't made by companies being profitable. So the skills of business often are useless or counterproductive to investing.
So in zero sense is it a hot take on Warren Buffet, it's just explaining that he's no more expected to be an authority on business than he is to be a basketball player.
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Similarly this is why venture capitalists often drive businesses into the ground and businesses looking to make money via investment or via business discuss these things when setting up their businesses. If the business' purpose is profits and operations, you want to avoid venture capital. If your goal is to make your money FROM the investors and not from being profitable, you use venture capitalists who typically play a game of investment hot potato.
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My mom was an investor and did really well. But she never ran a business in her life. She had no idea what went into it.
If you think about it, everyone with a retirement account is an investor. It's something everyone does (poorly) without even thinking about it. Buffet is someone who elevated that investment skill to an art. But at the end of the day, he's a guy buying a selling stocks at arm's length. He doesn't know what the businesses do nor does he involve himself in the business beyond having his portrait added to the lobby walls.
Assuming that investment and business are tied together would be akin to thinking that someone has to be a good chef just because they bought McDonald's stock. Or that someone is a phone engineer just because they bought Apple stock.
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Along those lines - I can understand why Buffett stays away from tech companies. Supposedly he understands enough of the business to know how he'll be squeezing money out of them... but he's admitted he doesn't understand how he'll squeeze it out of IT companies.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Similarly this is why venture capitalists often drive businesses into the ground and businesses looking to make money via investment or via business discuss these things when setting up their businesses. If the business' purpose is profits and operations, you want to avoid venture capital. If your goal is to make your money FROM the investors and not from being profitable, you use venture capitalists who typically play a game of investment hot potato.
I'm lost how venture capitalists stay around then? Unless that it's just the VC company itself keeps finding new foolish money to invest and loose with them?
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Along those lines - I can understand why Buffett stays away from tech companies. Supposedly he understands enough of the business to know how he'll be squeezing money out of them... but he's admitted he doesn't understand how he'll squeeze it out of IT companies.
"supposedly" based on what? He claims he doesn't know IT, IT is business basics, so he's said he doesn't get "business." That's fine and not at all required for what he does. He needs zero knowledge of business to do investing of the type that he does. It would actually be a waste of his effort to do so and undermine his investing research time.
He obviously made up a bullshit excuse to not answer the question. Don't try to make it something it isn't. He lied, people lie, move on. It means nothing. Just don't try to take him saying something patently false as some kind of advice from a business guru because he's an investment guy who was just blowing off the question because he didn't want to answer it.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Similarly this is why venture capitalists often drive businesses into the ground and businesses looking to make money via investment or via business discuss these things when setting up their businesses. If the business' purpose is profits and operations, you want to avoid venture capital. If your goal is to make your money FROM the investors and not from being profitable, you use venture capitalists who typically play a game of investment hot potato.
I'm lost how venture capitalists stay around then? Unless that it's just the VC company itself keeps finding new foolish money to invest and loose with them?
That's because you don't understand American capitalism. You are thinking only in terms of business profits, not investment profits. The two are very loosely connected and not at all connected in the short term. Capital investing has almost no need for profits, ever. That's not how it works. Over hundreds of years, yes, the two need some kind of tie or eventually things collapse. But during the investment lifetime of any given investor, it does not.
Since VCs make their money buying and selling stocks exclusively, and "never" from company profits, you should have no expectations of them being able to make profit (necessarily.)
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Look at SW as a key example. They are exactly a VC style firm from beginning to end. The founders put in "no" money, investors did. Those investors made bank when round A VC money came in. Those VCs made bank when round B VC money came in. Those investors made bank when round C VC money came in. Those investors made bank when IPO Investment Banking backers stepped in.
At this point, THOSE investors got burned because they overpaid for something that they had not properly evaluated. They then sold at a fire sale price to the current owners who paid pennies on the dollar for the remains of the company and now actually operate the business as part of a larger business strategy instead of attempting to run up its investment value.
Of the six or seven major parties involved in that process, all but one of them did really well. And all of them took risks, but the smarter (or luckier) ones made profits (on investments, never the business, the business was always losing money) and only very, very recently does the owner of the business also operate the business and now they are focused on making it profitable for the first time (and maybe they have or will after COVID subsides.)
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In America, it is extremely common to find millionaire or even billionaires who have never made business profits or run a business. This is what other countries complain about when they talk about American capitalism. I'm not commenting on its value, only pointing out that many Americans aren't even aware how their national capital investment system is unique or works. Most Americans never really witness it enough to understand it. But we all participate through retirement schemes and blind investments. Blind investing is the whole thing.
In very few other countries does this happen. Typical investing outside of the US involves active ownership and oversight of a business. Not always, but often. The idea that you would create a business that never makes money and get rich buying and selling that worthless business to higher and higher bidders sounds insane. But all of the US economy is built on that.
Most of the world sees the purpose of businesses universally to do a good enough job to make profits. But in America, you can be a highly regarded company with zero profits even for decades and make your money by increasing the stock value, while losing money.
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@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
Look at SW as a key example. They are exactly a VC style firm from beginning to end. The founders put in "no" money, investors did. Those investors made bank when round A VC money came in. Those VCs made bank when round B VC money came in. Those investors made bank when round C VC money came in. Those investors made bank when IPO Investment Banking backers stepped in.
At this point, THOSE investors got burned because they overpaid for something that they had not properly evaluated. They then sold at a fire sale price to the current owners who paid pennies on the dollar for the remains of the company and now actually operate the business as part of a larger business strategy instead of attempting to run up its investment value.
Of the six or seven major parties involved in that process, all but one of them did really well. And all of them took risks, but the smarter (or luckier) ones made profits (on investments, never the business, the business was always losing money) and only very, very recently does the owner of the business also operate the business and now they are focused on making it profitable for the first time (and maybe they have or will after COVID subsides.)
so yes - you said basically what said only with a lot more detail.
The VCs put money, they found more VCs to put money in, eventually original people were able to take money out by selling shares at higher value - and the suckers at the end of the line are the ones who lost... so that's how VCs work - always looking for the suckers. -
@scottalanmiller said in Is Real Estate Actually a Good Investment on Average?:
In America, it is extremely common to find millionaire or even billionaires who have never made business profits or run a business. This is what other countries complain about when they talk about American capitalism. I'm not commenting on its value, only pointing out that many Americans aren't even aware how their national capital investment system is unique or works. Most Americans never really witness it enough to understand it. But we all participate through retirement schemes and blind investments. Blind investing is the whole thing.
In very few other countries does this happen. Typical investing outside of the US involves active ownership and oversight of a business. Not always, but often. The idea that you would create a business that never makes money and get rich buying and selling that worthless business to higher and higher bidders sounds insane. But all of the US economy is built on that.
Most of the world sees the purpose of businesses universally to do a good enough job to make profits. But in America, you can be a highly regarded company with zero profits even for decades and make your money by increasing the stock value, while losing money.
Aka Uber and Theranos. Theranos I guess shows the beginning and ending of that crappy situation you talked about.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Aka Uber and Theranos. Theranos I guess shows the beginning and ending of that crappy situation you talked about.
No, Theranos was a scam. We are talking about solid, American investments, not criminal scams.
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@Dashrender said in Is Real Estate Actually a Good Investment on Average?:
Aka Uber
Uber is similar. All the early people made their money on the backs of VC. Today it's a publicly traded and actually profitable and being run as a business... but not by VCs obviously.
