Short Term Thinking

May 29, 2005

I was standing behind two 7 year olds, as they watched the soccer game scheduled before their own. The red team had just scored a goal. One of them turned to me and asked: “Who do you think will win?”

“I don’t know”, I answered. “We just came in. I haven’t seen enough of the game.”

“I think Red will win”, said the little forecaster.

Just minutes later, the blue team scored.

He turned to me and said: “No, I think Blue will win”.

No, markets are not irrational; they merely reflect the opinions of the people who participate in them. Sometimes those people can be irrational. Unwarranted fear or greed is often a sign of short term thinking. A success may be irrationally projected as: “wow! if this firm can do this every quarter… it will be worth gazillions.”

Right now appears to be a normal time, not really a good time to buy or sell stocks. If you are interested in the long term, shouldn’t you wish for a period of “irrational fear” or a period of “irrational exhuberance”?

Is the stock market a so-called “zero-sum game”?

Too quick to market

May 20, 2005

No point if you get a great idea that you want to patent, but someone has already patented it. Quick to market is good, but there is also a problem with being “too quick to market”. There are contexts where the competition is significantly better and what you are taking to market is significantly worse.

You can take “vaporware” to market if the vaporware “has” some features that make it interesting to prospects. You still run an “expectation risk”, but you could get away with it… vaporware has its uses.

However, if your offering is just like someone else’s there may be point producing it, but not in taking it to market before it is ready. Here is an example of a site that is being advertised on Google even though it is virtually blank. That’s not good marketing.

Marketing is not the creation of any type of awareness.

Do we have a Real Estate Bubble?

May 5, 2005

Summary: Some slow-down is coming, with largest downturns probably in places that saw the largest upturns (aka, not in the mid-West)

Over the last year, many have been saying that we are nearing the peak of a real-estate bubble. A few voices say that “real estate is local”, so any forthcoming bust will be geographically-specific.

At the recent Berkshire shareholder meeting Warren Buffett said that there may be a bubble at the high end of the market. Charles Munger went further, saying that he thought there was a bubble in Washington D.C. and some parts of California.

I have seen too many Buffett predictions come true to take this lightly (though this time he was not whole heartedly endorsing the idea of a bubble).

Our house is far from top-end, and we don’t live in a city where prices have sky-rocketed. In fact, if it is a bubble and it does burst, I should consider waiting 4 or 5 years and then “trading up” around the year 2010.