Hopes and Dreams

If you look at how we value a stock - there is book value (cash, equipment and machinery, any real estate, inventory, etc.) plus revenues (the future cash flow that business generates in today's dollars), and then hopes and dreams (what you think might happen) - as Arbor Research points out in the chart, the real value of the stocks in the market are going up in book value and revenues - it's the hopes and dreams that maybe got a little out of whack. They are coming back to earth.

When you value real estate - there is really a book value which is the value of the property itself (wood, mortar, fixtures, land), plus revenues (the amount of money you save having to rent to live somewhere), and then hopes and dreams. In real estate we can see the market get out of whack at times when rates are extremely low things can get really inflated, but the hopes and dreams of living in a house in a location that you love do have an impact on how you value your house. You don't have to sell it unless you can't service the debt, and the higher equity we have today and higher cash reserves make that less likely - as such we don't have to sell.

The HOUSE asset doesn't behave like a STOCK. Take Peloton - which was all hopes and dreams, until it wasn't. This correlation of housing and stocks have only aligned one time and that was in 2006-2010. It could happen again, but it won't look the same.

Coaching Tip: Don't put your head in the sand, that's never a good idea. Grow your awareness of how things work, and use your confidence to build confidence in others.