Author Topic: Any ideas on how to bet against the Canadian housing market?  (Read 11869 times)

Fuzz

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Any ideas on how to bet against the Canadian housing market?
« on: January 14, 2014, 04:36:30 PM »
Hi guys -

Let's assume that I've put 90% of my money money in broad based index funds, and I am mostly convinced by the standard arguments that retail investors should not try to beat the market by buying individual stocks. 

With that 10% of "casino money" I've allowed myself to play with, how should I try to be against the Canadian housing market? My theory is that prices will drop in the next 18 months, although the crash won't be as spectacular in the US.

Are there funds to short?

Any thoughts? How would you do this if your risk/reward preference went something like, "I am comfortable losing all of the investment if the Canadian housing markets continue to go up? I would like to make a lot of money if it was stagnant or declined" Would you buy an option?

Feel free to try and talk me out of this--but be mindful of assumption (1) that it's a tiny part of a portfolio and (2) it's OK to lose this money on this bet.
 

Cyrano

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #1 on: January 14, 2014, 07:20:13 PM »
If you want to bet on remaining solvent longer than the market remains irrational, get a list of Candisn REITs. Do your homework and read some balance sheets. Which firms are the most highly levered / will go splat first if their revenue dries up? Pick five or ten. Your call  on the relative merits of shorting or buying long dated puts.

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #2 on: January 15, 2014, 11:19:09 AM »
Find out who the most reckless lenders are and short their stock.  This worked great during the US housing crash and also worked well in other countries that had financial problems tied to housing, like Ireland.

Spudd

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #3 on: January 15, 2014, 12:32:27 PM »
Do you own a house in Canada? If so, sell it and rent until the crash happens, then re-buy.

I don't think REITs are necessarily a good way to do it, because they often consist of commercial properties, old age homes, apartment buildings, and the like - which may not be as affected by a crash.

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #4 on: January 15, 2014, 06:41:30 PM »
Home Capital Group is a Canadian sub-prime lender. Shorting it is probably as close to a pure play as you're going to get. Shorting a banking index would probably work too.

daverobev

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #5 on: January 15, 2014, 08:41:01 PM »
With shorting, remember losses can be unlimited.

There might be an inverse ETF that matches your needs.. not sure.

http://seekingalpha.com/article/31724-looking-to-short-real-estate-via-etfs

http://www.theglobeandmail.com/globe-investor/funds-and-etfs/etfs/current-conditions-favour-inverse-equity-etfs/article4099377/

D'ya have a house you can sell?

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #6 on: January 16, 2014, 08:01:21 AM »
With shorting, remember losses can be unlimited.

He could always buy puts to limit potential losses.

Anyway you trade it, profiting off of bubbles is tricky and always comes down to good timing.

I agree, if the OP owns a house, he should sell it if the rent vs buy equation is skewed aggressively toward rent.

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #7 on: January 16, 2014, 11:29:53 AM »

Anyway you trade it, profiting off of bubbles is tricky and always comes down to good timing.


This is where technical analysis becomes valuable.  Perfect timing is difficult, but timing "close enough" to the tops and bottoms is possible.

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #8 on: January 16, 2014, 01:04:00 PM »

Anyway you trade it, profiting off of bubbles is tricky and always comes down to good timing.


This is where technical analysis becomes valuable.  Perfect timing is difficult, but timing "close enough" to the tops and bottoms is possible.

Please ignore any guffaws you can probably hear from where you're sitting, considering I'm only one state over.

;)
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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #9 on: January 16, 2014, 01:14:28 PM »
Do you own a house in Canada? If so, sell it and rent until the crash happens, then re-buy.

I don't think REITs are necessarily a good way to do it, because they often consist of commercial properties, old age homes, apartment buildings, and the like - which may not be as affected by a crash.

REIT's might not be as direct based on their holdings, but if it's a large a enough crash those type of holdings will be affected as well. The 2008 mess in the US really crippled many commercial properties and apartment buildings in my area. People had less money to spend, so stores closed, and commercial properties lost tenants. Lending regulations tightened, and any apartment buildings with high a LTV % needed capital infusions from investors to extend loans since the building lost value. It was a mess, and many people lost their ass in commercial and big apartments, it just wasn't given as much attention in the media.

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #10 on: January 16, 2014, 02:32:32 PM »

Anyway you trade it, profiting off of bubbles is tricky and always comes down to good timing.


This is where technical analysis becomes valuable.  Perfect timing is difficult, but timing "close enough" to the tops and bottoms is possible.

Please ignore any guffaws you can probably hear from where you're sitting, considering I'm only one state over.

;)

I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #11 on: January 16, 2014, 02:46:44 PM »
I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

I would suggest don't.  The market is irrational, yes?  Else why would it be priced the way it is, according to your (the royal you/OP/whomever, not necessarily you you) metrics.  Do you expect it to suddenly become rational?

If no, why are you betting against it?

If yes, what would suddenly make it rational now?
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KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #12 on: January 16, 2014, 02:54:27 PM »
I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

As a general rule, any claims about market timing in this forum should be backed up with evidence, or at least a very compelling argument.  In my experience, claims about technical analysis are similar to claims about religion and usually not worth spending a lot of time arguing about. If you know of any compelling, robust strategies for timing a bubble's top, I'd be glad to read about it.

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #13 on: January 16, 2014, 03:41:59 PM »
I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

I would suggest don't.  The market is irrational, yes?  Else why would it be priced the way it is, according to your (the royal you/OP/whomever, not necessarily you you) metrics.  Do you expect it to suddenly become rational?

If no, why are you betting against it?

If yes, what would suddenly make it rational now?

A market doesn't need to become rational to crash.  In fact, if it were rational there wouldn't be a crash, but an orderly sell off to fair value.  A crash happens when a market is still irrational.

Sorry, but your entire thesis is wrong.

I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

As a general rule, any claims about market timing in this forum should be backed up with evidence, or at least a very compelling argument.  In my experience, claims about technical analysis are similar to claims about religion and usually not worth spending a lot of time arguing about. If you know of any compelling, robust strategies for timing a bubble's top, I'd be glad to read about it.

What kind of evidence would you suggest?  Generally, when a bubble market goes parabolic that is the top.  For reference, see the NASDAQ in late 99 / early 2000.  See California real estate prices in 2005.  See the price of gold in August 2011.  If you want to learn to spot a bubble's top then study the charts for those specific situations.

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #14 on: January 16, 2014, 04:01:38 PM »
I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

I would suggest don't.  The market is irrational, yes?  Else why would it be priced the way it is, according to your (the royal you/OP/whomever, not necessarily you you) metrics.  Do you expect it to suddenly become rational?

If no, why are you betting against it?

If yes, what would suddenly make it rational now?

A market doesn't need to become rational to crash.  In fact, if it were rational there wouldn't be a crash, but an orderly sell off to fair value.  A crash happens when a market is still irrational.

Sorry, but your entire thesis is wrong.

Why on earth would an "orderly sell off" (whatever that means) be more rational than an immediate correction to fair value?

I don't have any context for your comment, but I'm assuming you don't agree.  How do you suggest the OP go about shorting the Canadian housing market?

As a general rule, any claims about market timing in this forum should be backed up with evidence, or at least a very compelling argument.  In my experience, claims about technical analysis are similar to claims about religion and usually not worth spending a lot of time arguing about. If you know of any compelling, robust strategies for timing a bubble's top, I'd be glad to read about it.

What kind of evidence would you suggest?  Generally, when a bubble market goes parabolic that is the top.  For reference, see the NASDAQ in late 99 / early 2000.  See California real estate prices in 2005.  See the price of gold in August 2011.  If you want to learn to spot a bubble's top then study the charts for those specific situations.

And how exactly do you see the top of a bubble when it's happening, rather than in hindsight?
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Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #15 on: January 16, 2014, 05:07:25 PM »

Why on earth would an "orderly sell off" (whatever that means) be more rational than an immediate correction to fair value?

And how exactly do you see the top of a bubble when it's happening, rather than in hindsight?

Your first question isn't really on topic, but to answer, it wouldn't be more rational.  Now tell me the last time you saw an immediate correction to fair value after a bubble pops?  Do you have any evidence that this happens?  The bottom usually ends up being much lower than fair value and it takes years for price discovery to get it there.  That's because markets don't suddenly become rational when a bubble pops.  For instance, your local market in Vegas had real estate priced at 1980's levels near the market bottom.  Fair value was never a factor, because it never is during a speculative bubble.

The answer to your second question is that you can't see it when it's happening.  That's why I said perfect timing is difficult, but getting "close enough" to tops and bottoms is possible, to which you guffawed.

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #16 on: January 16, 2014, 05:50:43 PM »
The answer to your second question is that you can't see it when it's happening.  That's why I said perfect timing is difficult, but getting "close enough" to tops and bottoms is possible, to which you guffawed.

The problem as I see it is that the parabola can persist for a long time. The tulip bulb can go from $5->$25->$125->$625->$3,125->$15,625.  At $125, you could have said, hey, the price of tulip bulbs is crazy high and has gone parabolic! Shorting tulip bulbs would have wiped you out. even though you were "right". If you look at a chart of tulip bulbs, only the move from $3,125->$15,625 would really be obvious on the graph, so it's easy to forget the length and magnitude of the run-up. The bottom of the parabola always looks tame, even though it has the power to wipe you out, often many times over.

A more contemporary example: Bitcoin went parabolic from $80 to $350. A good time to short? No, you would have gotten destroyed as it went to $1,200.

In short, you need a more refined rule than "short it when it goes parabolic", though I suspect such a rule that works doesn't exist.

You could always buy puts, but that has its own set of complications (vol is usually priced very high on bubble names, you still have to get the timing right within a year or so, etc.)
« Last Edit: January 16, 2014, 08:27:47 PM by KingCoin »

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #17 on: January 16, 2014, 09:41:29 PM »

Why on earth would an "orderly sell off" (whatever that means) be more rational than an immediate correction to fair value?

And how exactly do you see the top of a bubble when it's happening, rather than in hindsight?

Your first question isn't really on topic, but to answer, it wouldn't be more rational.  Now tell me the last time you saw an immediate correction to fair value after a bubble pops?  Do you have any evidence that this happens?  The bottom usually ends up being much lower than fair value and it takes years for price discovery to get it there.  That's because markets don't suddenly become rational when a bubble pops.  For instance, your local market in Vegas had real estate priced at 1980's levels near the market bottom.  Fair value was never a factor, because it never is during a speculative bubble.

So if the current market isn't rational, and the pop won't be rational, then... what makes you think it will happen within some designated time frame during which you're shorting it?  Why can't it stay irrational longer?

The answer to your second question is that you can't see it when it's happening.  That's why I said perfect timing is difficult, but getting "close enough" to tops and bottoms is possible, to which you guffawed.

If you can't see it when it is happening, not only is perfect timing is difficult, any timing is just guesswork.

It's surely possible.  As is a coin at correctly predicting events.
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Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #18 on: January 17, 2014, 12:25:17 PM »

Why on earth would an "orderly sell off" (whatever that means) be more rational than an immediate correction to fair value?

And how exactly do you see the top of a bubble when it's happening, rather than in hindsight?

Your first question isn't really on topic, but to answer, it wouldn't be more rational.  Now tell me the last time you saw an immediate correction to fair value after a bubble pops?  Do you have any evidence that this happens?  The bottom usually ends up being much lower than fair value and it takes years for price discovery to get it there.  That's because markets don't suddenly become rational when a bubble pops.  For instance, your local market in Vegas had real estate priced at 1980's levels near the market bottom.  Fair value was never a factor, because it never is during a speculative bubble.

So if the current market isn't rational, and the pop won't be rational, then... what makes you think it will happen within some designated time frame during which you're shorting it?  Why can't it stay irrational longer?

The answer to your second question is that you can't see it when it's happening.  That's why I said perfect timing is difficult, but getting "close enough" to tops and bottoms is possible, to which you guffawed.

If you can't see it when it is happening, not only is perfect timing is difficult, any timing is just guesswork.

It's surely possible.  As is a coin at correctly predicting events.

Well, I've successfully timed gold, stocks, and RE at various points.  I must be one hell of a coin flipper.  Maybe I should move to Vegas and flip coins professionally. 

If you recognize that a bubble exists, then you can study the fundamentals behind it and get reasonably close to the tops and bottoms to make a profit.  Real estate is probably the easiest to time because the peak is tied to people's ability to pay a mortgage, and because information gets absorbed much slower than other financial markets.

The answer to your second question is that you can't see it when it's happening.  That's why I said perfect timing is difficult, but getting "close enough" to tops and bottoms is possible, to which you guffawed.

The problem as I see it is that the parabola can persist for a long time. The tulip bulb can go from $5->$25->$125->$625->$3,125->$15,625.  At $125, you could have said, hey, the price of tulip bulbs is crazy high and has gone parabolic! Shorting tulip bulbs would have wiped you out. even though you were "right". If you look at a chart of tulip bulbs, only the move from $3,125->$15,625 would really be obvious on the graph, so it's easy to forget the length and magnitude of the run-up. The bottom of the parabola always looks tame, even though it has the power to wipe you out, often many times over.

A more contemporary example: Bitcoin went parabolic from $80 to $350. A good time to short? No, you would have gotten destroyed as it went to $1,200.

In short, you need a more refined rule than "short it when it goes parabolic", though I suspect such a rule that works doesn't exist.

You could always buy puts, but that has its own set of complications (vol is usually priced very high on bubble names, you still have to get the timing right within a year or so, etc.)

It sounds like you wish there was a mechanical system to timing the market, which I agree doesn't exist.  I'm not presenting "short when it goes parabolic" as a rule, but just an observation of what a bubble looks like across various asset classes.  In timing it, you have to understand the fundamentals that are "supposed" to drive that market so you can watch them get farther and farther out of whack.  The peak is usually when a palpable sense of euphoria is in the air along with anecdotes of massive dumb money jumping into that market.  The decision to sell or go short is based on the fundamentals and watching market participants act foolish.  Technicals are used only to roughly time entry and exit points.

I don't follow the Bitcoin story very closely, but I'm not sure that qualifies as a bubble because there are no historic fundamentals to look at.  It's more like a bunch of speculative money that is hoping the technology will catch on.  The investors' hopes could pay off, so the valuations may be justified. (I'm doubting they are, but it's possible.)  Generally, I avoid the speculative Bitcoin, Tesla, Netflix trades altogether. 

Also, thanks for your well-written comment.  You've been my favorite poster on these investor forums so far.

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #19 on: January 17, 2014, 12:49:27 PM »
It sounds like you wish there was a mechanical system to timing the market, which I agree doesn't exist.  I'm not presenting "short when it goes parabolic" as a rule, but just an observation of what a bubble looks like across various asset classes.  In timing it, you have to understand the fundamentals that are "supposed" to drive that market so you can watch them get farther and farther out of whack.  The peak is usually when a palpable sense of euphoria is in the air along with anecdotes of massive dumb money jumping into that market.  The decision to sell or go short is based on the fundamentals and watching market participants act foolish.  Technicals are used only to roughly time entry and exit points.

Yeah, it's always going to be a qualitative judgement. Unfortunately, when prices don't make sense and euphoria is in the air, it's all too easy to set the short an order of magnitude too early. Even legendary investors like Julian Robertson took an absolute drubbing by shorting the tech bubble too early. If you've had success timing the market, congratulations, you're certainly in the small minority.

You occasionally see charts like this one:
http://www.marketoracle.co.uk/Article33015.html
These look very neat and tidy in retrospect, but it's hard to tell where you are in the cycle in real time (see my earlier comments about persistent parabolas).


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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #20 on: January 17, 2014, 01:05:59 PM »
It sounds like you wish there was a mechanical system to timing the market, which I agree doesn't exist.  I'm not presenting "short when it goes parabolic" as a rule, but just an observation of what a bubble looks like across various asset classes.  In timing it, you have to understand the fundamentals that are "supposed" to drive that market so you can watch them get farther and farther out of whack.  The peak is usually when a palpable sense of euphoria is in the air along with anecdotes of massive dumb money jumping into that market.  The decision to sell or go short is based on the fundamentals and watching market participants act foolish.  Technicals are used only to roughly time entry and exit points.

(Emphasis mine.)

The point is - how do you know when the dumb money has jumped in and it'll crash versus more dumb money jumping in, driving it higher, and causing you to lose your shorts?
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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #21 on: January 17, 2014, 02:27:40 PM »
Hi Fuzz,

There are at least two hedge funds created recently that will allow you to bet against the Canadian housing market. You mentioned though that this would just be a "tiny" part of your portfolio. Depending on what that actual number is, you might not have enough to get into these funds. They are not for average folks like us (assuming you're an average folk like me)! Outside of that, some have been shorting our currency, which has fallen against the USD significantly lately, but you'd have to decide if you still think it's going to continue to fall.

The safest bet--as others have already mentioned--is to sell your home and rent for a while.

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #22 on: January 17, 2014, 03:33:41 PM »
It sounds like you wish there was a mechanical system to timing the market, which I agree doesn't exist.  I'm not presenting "short when it goes parabolic" as a rule, but just an observation of what a bubble looks like across various asset classes.  In timing it, you have to understand the fundamentals that are "supposed" to drive that market so you can watch them get farther and farther out of whack.  The peak is usually when a palpable sense of euphoria is in the air along with anecdotes of massive dumb money jumping into that market.  The decision to sell or go short is based on the fundamentals and watching market participants act foolish.  Technicals are used only to roughly time entry and exit points.

(Emphasis mine.)

The point is - how do you know when the dumb money has jumped in and it'll crash versus more dumb money jumping in, driving it higher, and causing you to lose your shorts?

The dumb money is chasing returns, not fundamental value.  So once the returns no longer justify throwing dumb money at an overpriced asset, the market changes directions.  Changing directions can be as simple as staying flat for a prolonged period of time, causing the euphoria to wear off and the dumb money to start chasing returns elsewhere.  It's a play on market psychology and has nothing to do with the market suddenly acting rationally..

Here's a real life case study to help you understand:

In 2006, I acquired some gold at a cost basis of $630.  By the time it hit $800 I knew gold was in a bubble.  Looking at the charts was enough to tell me that, but like KingCoin has said, how do you know when to sell?  The hysteria for gold kept growing.  First it was buy gold to protect against inflation.  Then during the financial crisis, it was buy gold to protect against deflation.  MC Hammer and Ed McMahon were hawking gold on TV while "We Buy Gold" shops were springing up everywhere.  The financial media started to buy into the myth and blogs started popping up to pump gold even more.  Their were also a lot of Doomsday books being written promoting gold.  It just kept growing.

In August 2011, I was on vacation and hadn't been following financial markets very closely.  When I left town, gold was priced around $1,650 and the next time I checked it had hit nearly $1,900, after only 2 weeks.  That was the first time I felt a wave of euphoria wash over me from owning these stupid chunks of metal.  That was also the parabola on the gold chart.

But again, how do you know if that was it?  I didn't... But that was when I started watching the technicals closely.  I held on watching the price action and seeing if a new high would be reached.  The $1,800 price level got tested twice and couldn't be broken over the next year.  A new high was not set, so I decided to sell at $1,630, exactly $1,000 higher than what I acquired at.  Then wouldn't you know it?  The price tested $1,800 once more before the current crash began.  I could have scored almost $200 more!!  Oh well.  I still profited $1,000 on every once of what, to me, is worthless metal.

So let's review:

- I didn't buy at the bottom, but about 2x the price at the bottom.
- I didn't sell at the top, but about 15% from the top.
- I could have made more just by selling a month or two earlier, or later.

All in all, my timing was lousy, but it was still good enough to make a 150% profit (17% CAGR) and avoid the worst of the crash.

The moral of the story is that in a speculative bubble your timing doesn't need to be perfect, just close enough to the tops and bottoms to score most of the gain.

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #23 on: January 17, 2014, 03:52:14 PM »
(17% CAGR)

So one of your success stories is a 17% cagr?  What about when you're wrong then, how much drag does it create on your portfolio?  What's your long term average on bets like this?  How do you time a bubble with real estate?  Buy land when you see it going up, and sell when you think it's parabola peaked?
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Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #24 on: January 17, 2014, 05:23:57 PM »
(17% CAGR)

So one of your success stories is a 17% cagr?  What about when you're wrong then, how much drag does it create on your portfolio?  What's your long term average on bets like this?  How do you time a bubble with real estate?  Buy land when you see it going up, and sell when you think it's parabola peaked?

Bro, I've answered plenty of your questions and even provided an example.  I'm not here to defend myself, but I thought maybe it would help open your mind.  You need to do your own due diligence and not expect it to be laid out in pretty little package with a bow on top.

I'm not the only one that believes RE can be timed.  There are plenty of people that sold real estate at the top and re-entered at the bottom.  Bruce Norris sold over 100 houses at the peak and he's been buying like crazy since the market bottomed.  Many of his students have done the same.  Everything he talks about is completely data driven.

http://www.thenorrisgroup.com/about/bruce_norris/

Quote
Bruce Norris is an active investor, hard money lender, and real estate educator with over 30 years experience. Bruce has been involved in more than 2,000 real estate transactions as a buyer, seller, builder, and money partner.
 
Renowned for his ability to forecast long-term real estate market trends and timing, the release of The California Comeback report in 1997 gained him much notoriety.  The accuracy of the extensive report led many California investors to financial freedom. His January 2006 release, The California Crash, was an in-depth look into the California market correction and the statistics behind Bruce’s predictions.

I don't know how often he makes it out to Vegas, but you should go listen to him speak if you can.  He will open your mind to a world you don't want to admit exists.

Another good book that has information on real estate cycles and data points to watch for effective entry and exit points:

http://www.realestatetiming.com/

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #25 on: January 17, 2014, 09:34:59 PM »
(17% CAGR)

So one of your success stories is a 17% cagr?  What about when you're wrong then, how much drag does it create on your portfolio?  What's your long term average on bets like this?  How do you time a bubble with real estate?  Buy land when you see it going up, and sell when you think it's parabola peaked?

Bro, I've answered plenty of your questions and even provided an example.  I'm not here to defend myself, but I thought maybe it would help open your mind.  You need to do your own due diligence and not expect it to be laid out in pretty little package with a bow on top.

Heh.  "Bro."  That's not one we've had much on the forums.  Thanks for the laugh.

One example doesn't prove much, especially if it's the outlier - thus the question about what if you're wrong, how does the drag affect your portfolio.  But we can skip that if you feel your one example was sufficient, I'm not bothered.

To be clear, I wasn't asking how real estate can be timed.  Obviously my buying housing in 2009-2011 was based on the fact that it was undervalued, especially in terms of rent to price ratios, meaning good cash flow.  Undervalued = timing.

I was asking how you time real estate.  Sure, someone owning 100 units who sells when it appears to be nearing a peak may be timing the RE market.

My question though is what are you doing.  Is real estate undervalued right now?  Was it over the last few years?  How do you decide your entry point?  What if it doesn't "bubble" but moves towards a steadily higher - but fair - value?

If you weren't in RE in 2002 or so, would you have bought in 04 thinking it had a ways to go up in the bubble part, or

If you feel now is a good time to buy RE based on value, why?  If you feel it isn't, why not?

I wasn't trying to attack you, I am genuinely curious about those questions.  How do you time a bubble with real estate?  Buy land when you see it going up, and sell when you think it's parabola peaked?

Or, you know, you could tell me to do my own due diligence and not expect it to be laid out in pretty little package with a bow on top, and we can skip the potentially productive (and interesting) part of the conversation.
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daverobev

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #26 on: January 17, 2014, 09:45:22 PM »
@The OP: Have you looked into actual gambling? As in, going into a bookmakers (do we have those here in Canada? Betting on sports etc?) and asking them to take on a bet on whatever outcomes for the housing market? I mean - that is what they do, right?

If they'd give you 5-1... or whatever, that's the discussion, right?

@ARS/Poorman... clearly it's possible to see something as good value and choose to buy some. And see things you own as overvalued and sell. As to whether you as an individual choose to buy the market and ignore the fluctuations (and win), or buy individual stocks or houses when they are at 'the right price' (and win?).. that's personal. But the evidence shows that more people will do well buying-and-holding broad based indices. Can some people beat the market? Yes. Can you do better than 17%? Yes. Can you lose your shirt? Yes.

But the *fact* is, if you keep plugging away buying the FTSE All Share or the S&P 500 or whatever, you'll be fine. Does it matter if you return 8% or 9% average? No. Does it matter that you start saving and investing? Yes.

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #27 on: January 17, 2014, 09:54:39 PM »
Well said Dave.

Back OT, have you tried looking into indirect ways to short it, or even actual shorts like the Libertas Real Asset Opportunities Fund?
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with three kids.
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Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #28 on: January 20, 2014, 10:55:39 AM »
Undervalued = timing.

Wrong.  Wrong.  Wrong.

Market timing is about using data to find good entry and exit points.  You can time markets that are undervalued, fairly valued, or overvalued.  In fact, some investors believe buying high and selling higher is the best way to make money (although that's not a view that I share).

Answering your plethora of questions would take me hours of time which I don't have to spare.  The gold example was just to provide an illustration to help make sense of my other statements.  If you really want to learn RE timing, then check out Bruce Norris.  I consider him to be the best and I'm sure his materials explain things better than I could.  Very few RE prognosticators have a record of telling investors when to get out because it's not in their financial best interest to do so.  He is one of the very few with a record of doing so.

Hopefully, your assumptions about rational behavior, market timing, and chart reading have been challenged just a little.

Peace bro.

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #29 on: January 20, 2014, 11:09:26 AM »
@The OP: Have you looked into actual gambling? As in, going into a bookmakers (do we have those here in Canada? Betting on sports etc?) and asking them to take on a bet on whatever outcomes for the housing market? I mean - that is what they do, right?

If they'd give you 5-1... or whatever, that's the discussion, right?

@ARS/Poorman... clearly it's possible to see something as good value and choose to buy some. And see things you own as overvalued and sell. As to whether you as an individual choose to buy the market and ignore the fluctuations (and win), or buy individual stocks or houses when they are at 'the right price' (and win?).. that's personal. But the evidence shows that more people will do well buying-and-holding broad based indices. Can some people beat the market? Yes. Can you do better than 17%? Yes. Can you lose your shirt? Yes.

But the *fact* is, if you keep plugging away buying the FTSE All Share or the S&P 500 or whatever, you'll be fine. Does it matter if you return 8% or 9% average? No. Does it matter that you start saving and investing? Yes.

I think your advice is decent for most people, but index investing does have it's pitfalls.  For instance, the SPY etf has a compounded return of 3.5% for the past 14 years.  That is less then the safe withdrawal rate of 4% which means early retirees without a better plan would have been eating away at their principal that entire time, assuming they even had the discipline to stick it out (which is a big IF).

Index investing also does poorly in deflationary environments.  Assuming index investing were available during the Great Depression, many would have gotten wiped out.  Japanese index investors haven't done too well either.  The Nikkei index peakout out 25 years ago and there's no sign of ever returning to those lofty heights again.

Currently, the US still has a deflationary undertow but the Fed's money printing regime is doing it's best to fight it.  Nobody, not even the Fed, ultimately knows if this will be successful.  If they aren't, the US could be in for some rough years ahead, and assets that depend on steady inflation like stocks and real estate, will not do very well.  Index investors could get clobbered.

Caveat emptor

Le Dérisoire

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #30 on: January 20, 2014, 02:09:55 PM »

Anyway you trade it, profiting off of bubbles is tricky and always comes down to good timing.


This is where technical analysis becomes valuable.  Perfect timing is difficult, but timing "close enough" to the tops and bottoms is possible.

Along with technical analysis, reading tea leaves and knowing the basics of chinese astrology can be of great help.

...

I tried to short the canadian real estate market once (only a few bucks for fun) by buying some HCG puts. It was so obvious that it would crash soon, like in a month or two. It was in february 2013. It still has not crashed and I'm still amazed by how much people buy overpriced houses and pay twice what they would to rent it. It is pure irrationality.

The thing is that it could keep going like that for a long, long time. Or not. We all know that real estate prices are sky high, but anyone that can tell you when or how it will correct is a liar or an ignorant.

I learned the hard way that it is truly impossible to time the market unless your rely on pure luck. If you have some gamble money, go to the casino, play poker then get drunk. Much funnier.

EDIT: The "soft" way of learning would be to trust overwhelming statistical evidences that technical analysis and market timing is bullshit (or bearshit in the case of canadian real estate).

Here's a link: http://www.amazon.ca/Investments-Zvi-Bodie/dp/0070071705/ref=sr_1_1?ie=UTF8&qid=1390252693&sr=8-1&keywords=investments
« Last Edit: January 20, 2014, 02:20:16 PM by Le Dérisoire »

Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #31 on: January 20, 2014, 03:00:24 PM »

Along with technical analysis, reading tea leaves and knowing the basics of chinese astrology can be of great help.

The difference is that a chart is simply a visualization of market data.  Ignoring market data is a guaranteed path to investment ruin.

It sounds like you were trying to time Canadian real estate based on gut feeling and your belief that the market should stop being irrational.  Big mistake.  You need to assume the market will continue to be irrational and use market psychology to your advantage.  You also need to start studying the data.  Check out the links I posted for RE timing earlier in this thread and you'll see that it's not astrology.

Quote
EDIT: The "soft" way of learning would be to trust overwhelming statistical evidences that technical analysis and market timing is bullshit (or bearshit in the case of canadian real estate).

Here's a link: http://www.amazon.ca/Investments-Zvi-Bodie/dp/0070071705/ref=sr_1_1?ie=UTF8&qid=1390252693&sr=8-1&keywords=investments

Here is a scientific study of a specific chart-based market timing system that matches or exceeds stock returns with a fraction of the volatility (i.e. lower risk).

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #32 on: January 20, 2014, 05:55:11 PM »
Here is a scientific study of a specific chart-based market timing system that matches or exceeds stock returns with a fraction of the volatility (i.e. lower risk).

http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461

I breezed through the paper. Their sole use of technical analysis is using a 200 day moving average. There are some interesting results there, but nothing overly conclusive IMO. It works very well in trendy/crashy markets, and poorly in choppy markets. The biggest challenge of using things like moving averages is sticking to it over the long term. Even pros struggle with it, and it's all but hopeless for retail investors.

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #33 on: January 20, 2014, 07:42:56 PM »
Wrong.  Wrong.  Wrong.
...
Answering your plethora of questions would take me hours of time which I don't have to spare. 
...
Hopefully, your assumptions about rational behavior, market timing, and chart reading have been challenged just a little.

So you're happy to throw out criticisms and generalizations, but have no time for actually backing up anything that you say?

I say this with all sincerity, not just to be an ass: why, exactly, are you posting?
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CDP45

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #34 on: January 20, 2014, 10:44:27 PM »
Why don't  the richest men on the planet use chart analysis to create their fortunes? Why are you not filthy rich? Can you point to any fund or investor that has outperformed the S&P500 over any 5 year period?


Poorman

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #35 on: January 21, 2014, 11:08:04 AM »
Wrong.  Wrong.  Wrong.
...
Answering your plethora of questions would take me hours of time which I don't have to spare. 
...
Hopefully, your assumptions about rational behavior, market timing, and chart reading have been challenged just a little.

So you're happy to throw out criticisms and generalizations, but have no time for actually backing up anything that you say?

I say this with all sincerity, not just to be an ass: why, exactly, are you posting?

I'm here to discuss investing.  That doesn't mean I have to answer dozens of your questions, especially when your posts don't seem very sincere.  Check out the multiple resources I linked to if I'm wrong and you are serious.

The biggest challenge of using things like moving averages is sticking to it over the long term. Even pros struggle with it, and it's all but hopeless for retail investors.

I agree with you that the temptation is always there to stray, but I think that same criticism can be launched at index investing.  The temptation to stray is there especially when the S&P has had such poor cumulative returns for the past 14 years, including two hairy market crashes.

Why don't  the richest men on the planet use chart analysis to create their fortunes? Why are you not filthy rich? Can you point to any fund or investor that has outperformed the S&P500 over any 5 year period?


Why are you assuming the richest people don't use chart analysis?

http://etfhq.com/blog/2013/03/02/top-technical-analysts/

Quote
Worlds Richest TA Traders:

I was very happy to discover that the Forbes Rich List was scattered with investors and hedge fund managers who have profited handsomely despite giving fundamentals a back seat.  Here are my favourites from the 2012 list:

#82 James Simmons - $11 billion
#88 Ray Dalio - $10 billion
#106 Steve Cohen - $8.8 billion

You can read the article if you want to see how these guys have annihilated the S&P.

So, that begs the question... Why aren't the richest men on the planet using index investing?  Is John Bogle on the Forbes 400?

http://www.celebritynetworth.com/richest-businessmen/wall-street/john-bogle-net-worth/

Quote
John Bogle was a CEO and founder of The Vanguard Group as well as author of a best seller, with a net worth of $80 million. John Bogle earned his net worth from his book "Common Sense on Mutual Funds" and his career in business. He was born in Verona, New Jersey. Despite being one of the most revered fund managers in the history of finance, an August 2012 profile of Bogle revealed his current net worth was in the "low double digit millions". This amount is in stark contrast to his hedge fund peers who regularly earn hundreds of millions of dollars in a single year and have accumulated multi-billion net worths.

Well, I think we're done with this argument.

daverobev

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #36 on: January 21, 2014, 11:57:30 AM »
Problem is, your average investor is much more likely to 'win' by passive investing.

People who are worth billions don't play by the same rules. They get preferential pricing, they *move* the market.

Hedge fund managers? Give me a break - they don't make money by investing, they are parasites - totally different job. Do they drink their own kool-aid? Who knows.

Don't get me wrong. It's possible to 'buy low, sell high' and it is possible to make a guess as to when a market is over or under valued, and will correct - but you don't know when it will correct.

If I gave you two bets:

1 - 80% chance of significantly underperforming the market, 20% chance of significantly outperforming or;
2 - 100% chance of taking market returns

what would you take? (And in no way do I think its 80/20!).

Just because *some people* do well at something does NOT mean most can.

KingCoin

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #37 on: January 21, 2014, 12:22:00 PM »
Just because *some people* do well at something does NOT mean most can.

Yeah, I'd add to this by saying that the majority of successful managers cited are "quantitative" investors, not "technical analysts". The difference between the two is a topic for another thread, but the former requires things like PhD's running complex screens and lightening fast execution. I can assure you that Jim Simons and the guys over at Renaissance Technologies aren't sitting around trying to spot head-and-shoulders patterns or call the top on bubbles by sticking their fingers in the air.

That is to say, I believe people can beat the market using non-fundamental factors, but they're not going to do so with most facile analysis like looking at chart formations (unless they just get lucky).  Trading a 200 day moving average looks promising, but again, it's almost impossible to stick to it for a few months, let alone a few decades. If you have an exceptional emotional detachment from the market, you might be able to pull it off and it might be successful if the future mimics the past, but the vast majority of non-professional investors will be far better off sticking to an index strategy than trading off some technical analysis handbook that they picked up from an infomercial.
« Last Edit: January 21, 2014, 01:13:28 PM by KingCoin »

arebelspy

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #38 on: January 21, 2014, 12:38:49 PM »
Quote
John Bogle was a CEO and founder of The Vanguard Group as well as author of a best seller, with a net worth of $80 million. John Bogle earned his net worth from his book "Common Sense on Mutual Funds" and his career in business. He was born in Verona, New Jersey. Despite being one of the most revered fund managers in the history of finance, an August 2012 profile of Bogle revealed his current net worth was in the "low double digit millions". This amount is in stark contrast to his hedge fund peers who regularly earn hundreds of millions of dollars in a single year and have accumulated multi-billion net worths.

Well, I think we're done with this argument.

(Emphasis changed.)

He has made money helping other investors.  Those "hedge fund peers" make those hundreds of millions by exploiting others and taking their money.

How you can admire that is beyond me.

Edit: Snarky comment removed.
« Last Edit: January 21, 2014, 01:02:49 PM by arebelspy »
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Ottawa

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #39 on: January 21, 2014, 12:52:28 PM »
Here is how you will be able to bet against the Canadian housing market if you wish:

http://spartanfunds.ca/LibertasRealAsset.aspx

To be launched sometime this quarter. 

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Re: Any ideas on how to bet against the Canadian housing market?
« Reply #40 on: January 22, 2014, 08:57:57 PM »
Brand new here!  I guess that would make me a Badass in training pants. Have you thought about investing in MCAN MORTGAGE CORP(MKP:TSX, CA). Good dividend yield while you wait for an impending crash?