A while back when we were still in L.A., we lived in a large apartment complex very close to Disneyland. Because I stayed home quite often during that time, I knew most of the maintenance crew. The head of handymen once talked to me about buying a house through a broker that could hook him up with low down payment and low interest payment mortgage. When I pressed him for more details, he shrugged, "I don't know. I can give you a card and you can call him. He is really nice."
Some day before we moved to Santa Cruz, he told me again that he bought a second house because he made a fortune on the first one. "Jesus," I told him, "you need to be more careful." He didn't seem to care even after I told him I was an investment adviser. He still held on to the first one. I don't know if he had cashed out before the subprime crisis hit. (Good luck, Gus!) But here we have two lessons to learn.
First, as Prof. Ravenna pointed out, bubbles can be rational. As long as there are buyers with higher offer than your purchase price, your buying high is rational. I doubt Gus knew about the theory, but he made a fortune on the first house.
Second, when a handyman is going all in and not hesitating to brag about it, the market is probably over heating. It is only a matter of time to see the bubble burst.
(Picture: www.bconnex.net)
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