Peter Lynch Lyrics: Investing In Houses And Stocks

The following notes was taken from a forum posting. If not mistaken the original writings were posted at Wallstraits.com

Lynch Lyrics
Investing in Houses and Stocks

"It's no accident that people who are geniuses in their houses are idiots in their stocks. A house is entirely rigged in the homeowner's favor. The banks let you acquire it for 20 percent down...giving you remarkable leverage. True, you can buy stocks with 50 percent cash down, which is known in the trade as 'buying on margin', but every time a stock bought on margin drops in price, you have to put up more cash. That doesn't happen with a house. You never have to put up more cash if the market value goes down, even if the house is located in the depressed oil patch. The real estate agent never calls at midnight to announce: 'You'll have to come up with twenty thousand dollars by eleven A.M. tomorrow or else sell off two bedrooms,' which frequently happens to stockholders forced to sell their shares bought on margin."


"Because of leverage, if you buy a $100,000 house for 30 percent down and the value of the house increases by 5% a year, you are making a 25% return on your down payment...do that well in the stock market and eventually you'd be worth more than Boone Pickens...It's not likely you'll get scared out of your house by reading a headline in the Sunday real estate section: 'Home Prices Take Dive'. They don't publish the Friday afternoon closing market price of your home address in the classifieds, nor do they run it across the ticker tape at the bottom of your TV, and newscasters do not come on with lists of the ten most active houses--"100 Orchard Lane is down 10% today. Neighbors saw nothing unusual to account for this unexpected decline."

"Houses, like stocks, are most likely to be profitable when they're held for a long period of time. Unlike stocks, houses are likely to be owned by the same person for a number of years-- seven, I think, is the average. Compare this to the 87 percent of all the stocks on the New York Stock Exchange that change hands every year. People get more comfortable in their houses than they do in their stocks. It takes a moving van to get out of a house, and only a phone call to get out of a stock."

"Finally, you're a good investor in houses because you know how to poke around from the attic to the basement and ask the right questions. The skill of poking around houses is handed down. You grow up watching how your parents checked into the public services, the schools, the drainage, the septic perk test, and the taxes. You remember rules such as 'Don't buy the highest-priced property on the block.' You can spot neighborhoods on the way up and neighborhoods on the way down. You can drive through an area and see what's being fixed up, what's run-down, how many houses are left to renovate. Then before you make an offer on a house, you hire experts to search for termites, roof leaks, dry rot, rusty pipes, faulty wiring, and cracks in the foundation."

"No wonder people make money in the real estate market and lose money in the stock market. They spend months choosing their homes, and minutes choosing their stocks. In fact, they spend more time shopping for a good microwave oven than shopping for a good investment."


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