Financial

What I Did To (WID2)… Fail to Catch a Good Analysis

So back in 2006, I was reading what I could about stocks and learning to invest more.  Occasionally I would run across discussions that had to do with things other than stocks.  In one case, a discussion of a stock — KB Homes, a homebuilder — turned into a discussion of the housing market.

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Liana in Arkansas, where we went for mom’s 50th High School reunion about the time that these posts were being written

And here, from a guy who goes by DesertDaveAOL, is a quote.  This is from August 29, 2006:

“I’m no expert in real estate but everything I’ve read and seen about the housing market points to a serious downturn that, according to the quoted experts may last from 3 to 7 years. That estimate is based on previous real estate slowdowns before “No Money Down” and ARMs became the predominant method of buying houses. That creative financing led to a large number of people buying houses more expensive than they could otherwise afford.

A large number of those ARMs are due to have their payments raised next year and many believe that will lead to a huge round of defaults and foreclosures. “

We all know what happened two years later.  What isn’t in the above is how the domino effect of mortgage defaults was going to lead to failures in the packaged instruments, the insurance on those packaged instruments, and from there to tie up the entire financial sector and cause a recession bigger than anything I’ve seen in my lifetime.  Still.  If I had seen even part of that, and been able to figure out how to ride the wave better, I would would be far better off today than I am.

There were a lot of posts in this thread, with a lot of people posting similar concerns. And there were people who thought everything would be fine.  There was discussion of the burst of the housing bubble.  Most of them were focused on interest rates and housing, and because I was living in a house that I already owned, had plenty of value in, had a good interest rate on a good loan, and didn’t own any real-estate related stocks, I could not see how a crisis in real estate could affect me.  Yes, a couple of people said that the economy and the stock market follow  real estate closely, and I thought that might be true.  But still… I figured I was insulated from this risk.

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Another picture from Arkansas — I believe this is up on the mountain above the city.  That garden, whatever it was called, was really pretty.

I even thought there was going to be a real buying opportunity when things all bottomed out, and hoped that I would be smart enough and have a little money available to invest when things did.  But — and this is where I went really wrong — I thought it would be limited to companies directly tied to housing, like KB Homes.  I never figured out how wide-spread it would be, nor how bad it would be.  And that was a real miss.  I came out of it okay, through luck and having solid investments.  It certainly wasn’t any intelligent thing that I did.

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