If you gave me $10,000 to invest in the stock market, I would make a bold, aggressive move.
Toilet paper.
Or the companies that make it. And other boring things, like baby food and toothpaste and canned vegetables.
Why? Why not in the tech sector, where there are more profits to be made? Why not in mining stocks, or oil and gas, where rising commodity prices have kept stocks buoyant?
Because, when it comes to my money, I'm alarmingly conservative. I don't really understand the allure of gambling at all.
("What? The house always wins? Then why is everyone putting money in the machines?") I hate personal debt. I didn't get a credit card until I was 26.
So I'd invest in nice, boring, low yield investments. (Which some studies suggest outperform anything else over the long run. Ask Warren Buffett about that sometime.)
One thing I would not invest in? Real estate. It is here that I should stop and give some credit to federal Finance Minister Jim Flaherty, for tightening up mortgage lending rules over the past few years. I've spent a few column inches in the past giving him a kicking, so it's only fair that I say: Good job, Jim.
The housing market was overheated to a ludicrous extreme, and cutting back on government-insured mortgages looks like a good plan. If you can't afford anything but a 40 year mortgage, you probably shouldn't be buying a house in the first place.
The other good reason for cooling the housing market is that, hopefully, it will have an unintended spin-off effect. It could force people to invest their money in something other than property.
Property is, from an economic point of view, a bit of a black hole. Once you've built a house, it doesn't do anything. It doesn't make widgets, it doesn't supply many more jobs until it gets old and needs a new roof, it doesn't attract a lot of tourism dollars (unless it's like my planned Tyranosaurs rexshaped home). It just sits there.
Yet many people "invest" in real estate. Some have realistic expectations of eking out some profit as landlords, a long term project. Many others, however, are hoping that housing prices will only rise, and preferably in the short term.
That doesn't always happen. Right now, we may be on the cusp of a housing price drop. Or a long stagnation. Or it'll come next year, or the year after that, but we know it'll come. House prices have gone up for too long to stay stable.
In fact, Flaherty's project to reduce the amount that people are able to spend on their housing might have already started the house price rollback.
The main argument for investing in housing is that, in the long run, house prices always go up.
Over the course of a century or so, that seems to be true. But over the course of any given 10-year period? Not necessarily. U.S. home prices are nowhere near the levels of 2006, for example.
When will those who bought their homes at the peak of the bubble get their investment back? Next year? Next decade? Go back to the early 1980s in B.C., and we had a similar bubble and sudden drop in prices. The Great Depression was also notable for being bad for many investments, including real estate.
So if you happen to have some spare cash, please take my advice. Don't speculate in the housing market, unless you're willing to be very, very patient.
Just put your cash into toilet paper stock. We aren't going to stop buying it anytime soon.
Matthew Claxton reports for the Langley Advance.
