Bubble talk

Some days ago, a friend queried me on the attractiveness (or, otherwise) of real estate in the US. I gave him a tepid answer. A more forthright answer is available from Megan McArdle:

Now, I thought we all agreed that in 2008, prices were too high, and there was a big bubble. What are we to think of even higher prices in 2014, when the economy has been staggering along on life support for six years?

Her article is worth reading in full.

This interview of James Montier is also worth reading as it highlights the difficulties of doing Asset Allocation in these times.

Tim Price’s latest missive (dated 17 March 2014) is useful for two reasons. It highlights two dangers and not just one. One is buying rubbish and the other is overpaying for quality. Most people might agree on avoiding the first error but they would try to hide their greed by invoking quality and delude themselves that they are being prudent. But, overpaying for quality is going to hurt as much as buying rubbish would hurt.

Two comments by Warren Buffett (lately, TGS has grown weary of the old man) mentioned by Tim Price are good ones:

“We don’t have to be smarter than the rest. We have to be more disciplined than the rest.”

“We don’t get paid for activity, just for being right. As to how long we’ll wait, we’ll wait indefinitely.”

Tim Price’s full missive can be found here.


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