A couple of weeks ago, The Chair discussed a dinner he had with Dimson — and that Dimson noted the "long term rate of return for everything other than stocks" is around 2.8%."

This morning, Steve Landsburg articulately expanded upon one of my points regarding utility value– demonstrating that headline numbers regarding long-term returns can be horribly misleading. In particular, he addressed James Glassman's recent WSJ op-ed where he admits that his Dow 36,000 call was wrong. But importantly, Glassman's mea culpa was wrong for the wrong reasons.

Landsburg's essay reminds me of the adage: "There are sardines for trading. And there are sardines for eating.

Duncan Coker writes:

I have known a number of developers as friends from having once lived in a resort town. During the go years when they would sometimes present a deal to me for a small share, I would point out the implicit 5 to 10 times leverage, or the large share of sweat equity they usually wanted. They would always look at me like I was an uneducated amateur who did not understand the main unspoken premise of building. Build it and they will come is always the motto, and you do have to admire their optimism.

Kim Zussman writes:

"The truth is that stocks appreciate faster than houses precisely because a house does not just sit there; it provides shelter, warmth, and closet space every single day that you own it. Stocks need to appreciate faster to compensate for the fact that they don't provide any comparable stream of services. If stocks and real estate appreciated at the same rate (counting the dividends as part of the appreciation, as Glassman does), nobody would own stocks."

Margin issues notwithstanding, very few would choose homelessness to be in the stock market. A better comparison would be a rental house held as an investment - where the shelter utility is capitalized - vs (initially equivalent value) investment held in stock(s):

Over time, stock will pay dividends (or reinvest earnings, etc), and the investment will grow by capital appreciation + dividends Over time an investment house will pay rental income, and the investment will grow by appreciation + rental income - upkeep

The Case-Shiller home price index shows real house prices approximately flat (with considerable variability) over the past century, whereas the stock market is up. It would be interesting to compare rental property - including rental income - to stocks over the same period. In theory rentals should go up more, to pay for the aggravation of being a landlord.

Henry Gifford writes:

An important factor usually left out of such discussions is that houses can be bought on 80% or 90% "margin," with fixed interest rates, in effect, being a giant option on the US dollar, favorable to the real estate owner in times of inflation, when real interest rates can be negative.I think this is how most people who make money on real estate make money on real estate, although few talk about it this way. 


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