We’ve been trying to sell our rental townhouse for the last 3+ months with no avail. The housing market, which is now being called “the worst in decades” – has dropped precipitously under the weight of high prices, high interest rates, and low wage growth.
In the last 3+ months, we’ve dropped our price three times, re-carpeted, and re-painted the unit – but nothing seemed to bring in an offer. Then unexpectedly, after 10 days of zero showings and 99 total days on the market – two purchase offers rolled in within two hours on Saturday!
One offer was at our asking price, but had some financing questions. The other was below ask, but all cash. We took the sure-thing. Pending the standard inspection & HOA documents review, we should be locked in for a fast closing … August 1st.
We lost some money on the place over the 3+ years we owned it. My back-of-the-envelope math says about -$20K, including the tax impact. If we had put the same money into 1-year high-yield CDs over that time, we probably would have been +$35K. That’s a -$55K swing, so this chapter of our investment story certainly falls into the “Financial Failures” section of the book.
Still, some investments work and others don’t. This loss hasn’t been to the detriment of our overall portfolio. In particular, the stock market has been incredibly strong over the 9+ years of our early retirement (+14.9% CAGR). In fact, I worry that the market has been too strong, and we maybe should park most of this money into something safe over the next couple years.
I’ve been looking at the “Buffet Indicator” measure recently (an assessment of stock market valuation), and it is higher now than at any point in my lifetime. It might make sense to keep our cash buffer a bit higher right now and be prepared to jump on the next Wall Street slowdown. Nice to have increased liquidity again!
Have you adjusted your cash buffer UP for the high stock market valuation right now?
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MrFireStation 
Short answer….yes. And for 2 reasons. One reason is what you mentioned about high equity valuations and this reason is more tactical. The other reason is more strategic and involves where we are in our retirement journey. My wife and I both retired in the 2020-2022 window. About 8 years prior to that window, we made a conscious decision to slowly increase our cash position to manage SORR as we transition from accumulation to decumulation phase in the future. Now that we are 3 years into decumulation phase, our cash position is still high for SORR manangement. In addition, the higher cash position gives us flexibility to do a large Roth conversion this year if the market drops and cover the taxes with cash.
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That sounds like you are well planned for the current market context and to take advantage of opportunities. It sounds like you are 3-5 years into retirement. How is it going for you?
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Lovin’ it! The past 3 years for me (Oct 2022 retirement) have flown by and I’ve never been bored. With 2022 being an ugly year for both equities and bonds, it would have been easy to do the OMY shuffle and push off retirement….but so glad I didn’t. The years of planning and sticking to that plan have certainly paid off so far.
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That’s great to hear! Many people worry about being “bored” and quickly find themselves as busy as ever … but having fun instead of budget meetings!
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I sit in the lunchroom at the nerds’ table that is far as possible away from the cool kids’ table.
Here is an excerpt from Simply Safe Dividends July 7th Quarterly Newsletter, “The market has never been more concentrated either. Today, the top 10 stocks make up nearly 40% of the S&P 500 — far above the 25% to 30% seen during the late 1990s dot-com bubble and the Nifty Fifty era of the early 1970s. The giants of those periods eventually stumbled.“
I would like to add that most of the 10 stocks that make up 40% of the S&P 500 are seen as AI plays and are hyped. Because the S&P 500 is market cap weighted, index funds must buy more of the ten stocks that make up 40% of the index. Over the past decade the Market Cap Weighted S&P 500 market cap weighted index has beat S&P 500 Equal Cap Weight index funds. There are periods when the Market Cap Weighted Index Funds beat Equal Cap Weighted Index Funds. Then there are other times when the trend reverses and the Equal Cap Weighted Indexes win. The stocks that are showing up in my screening right now are stocks from the other 490 stocks in the S&P 500.
Some of the industries that are bubbling to the surface right now are Electric Utilities, Big Pharmaceutical Companies, Ultra-Processed Food Companies and Financials. I recently picked up some Pepsi Cola because they are unloved right now because of MAHA. I have seen many articles about how much electricity AI data centers consume, yet utility companies, including low cost providers, are unloved and seen as an alternate to high yielding short term treasuries.
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I agree that the concentration behind AI is driving the market right now. I saw a chart (somewhere) recently that compared the current run-up to the dot-com bubble from 25 years ago.
On the technicals, it looks very similar to that bubble. It will be interesting to see what companies emerge as the winners and who gets “played out”.
I agree that legacy electric companies could be big winners.
I saw an interview with former Google CEO Eric Schmidt talking about the energy / electricity needs. He said AI already takes 3% of the grid’s capacity. With continued advances and broad application, he stated that it could be 97% by 2030. Only 5 years away!
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97% seems extreme to me, but electricity consumption is certainly growing. This is driving Mr. Green Do-gooder crazy, so he is running a lot of AI queries to figure out what to do.
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