So much talk about real estate finally stabilizing. How is that possible?
I’ve pointed out in earlier blog posts that this recession most be the most overrated recession in history if real estate is finally stabilizing. My theory is that real estate is not stabilizing yet but falling slower. Home prices have historically crashed slowly during recessions unlike stock market crashes.
I know it’s hard for income investors to resist stocks with high dividend yield but if it’s true good to be true it usually is. The typical income investor might feel happy in the current market because there are so many stocks that has taken huge hits and their dividends are high compared to to their stock prices. This is particulary true for REITs, many REITs have high dividend right now because they have been hit very severly by the financial crisis.
The million dollar question: Will the dividend get slashed? Investing in a REIT looks very tempting but beware that real estate slumps usually are slow and painful, they can last for years. Many REITs that seems stable and etc might have to write down their book values. It’s possible to indirectly buy real estate worth $1000 through a REIT but pay $1200 or more for it. Companies with real estate holdings will most likely write down their book values the coming months and maybe years. I am avoiding real estate as I’ve mentioned earlier.
Two billionaires on the opposite sides of eachother regarding USG. Neither Buffett or Icahn are known for making bad investments. Of course one of them is wrong in this case. Buffett as we all know has the undoubtley the best track record but Icahn also belongs to the investor elite. He’s one of the most successful corporate raiders.
Berkshire owns 17 million USG shares, the average buy price is over $40. Icahn went short on the stock long before it plummeted down to the current $13.46. Icahn is way ahead so far. But they could both be right. If Icahn were to cover his short position now he would end up with a nice profit and if Buffett chose to hold the stock for another 5-10 years he might aswell also end up with a nice profit. It’s fully possible that they are both right. Icahn has clearly outperformed Buffett. But overall I consider Buffett to be a better investor than Icahn, but Icahn is definately right behind him.
I just noticed that I started the blog post by writing “Of course one of them is wrong in this case” and then I say they could both be right. I confuse myself sometimes. I want to apologise to all my readers for that.
