Reviewing The Tech And Housing Wreck Of 2018

I'm beginning to notice more panic in the comments section on Financial Samurai. People are a wreck about what to do in light of the stock market correction. The consternation is much greater than during the 1Q2018 correction. 

One 32-year-old fella with a healthy $1.3M net worth recently writes, “Am I steering us off a cliff ploughing so much money into stocks and bonds on a monthly basis?”

About 40% of individual companies in the S&P 500 are down more than 20% from their highs, while all the huge tech names are down 30% – 40% from their highs. The fear is mounting and unfortunately, things could get much uglier.

The tech wreck of 2018

The only two positive macro hopes left for the year are: 1) Trump and Xi having respectful, constructive trade dialogue at the G-20 meeting in Argentina between Nov 30 – Dec 1, and 2) the Fed hinting at a slowdown in rate hikes in 2019 after they raise rates again on December 19. As of now, the expectations are for an additional 3-4 rate hikes in 2019 at 25 bps a hike.

I don't know if Fed Chair Powell reads Financial Samurai, but if he does, he'd know for a while now that real estate markets everywhere from New York to Denver to Seattle are quickly slowing down. Here in San Francisco, properties that would have once sold for 5% – 10% over asking in two weeks are now sitting for months as inventory rockets by 44% YoY.

San Francisco housing inventory up big in 2018

Tech And Housing Wreck

Over the past two months, one of the top 3 most trafficked posts I get from organic search is: It's Time To Worry About The Housing Market Again, written at the beginning of the year and updated today. Financial Samurai has over 2,000 posts and pages for reference.

It's sad the good times are ending. But so long as we have the proper asset allocation based on our risk-tolerance, well be fine.

And if you're not feeling fine, then it's because you've overestimated your risk tolerance and need to try again.

I'm personally buying into the tech wreck, trying to be thankful for a second opportunity at buying companies I think will be big winners 10 years from now. Of course, only time will tell if I'm right. When it comes to investing, we can only blame ourselves for our losses and commend ourselves for our wins.

Below is a good chart highlighting the S&P 500 performance during a rate hike cycle.

Stock price performance during previous rate hike cycles

Finally, as I was sifting through my once healthy public investment portfolio, the only bright spots I got were from two REITs. The basic thesis for why they've been outperformers is that rising interest rates are a result of a strengthening economy, which more than offsets the negatives of higher borrowing costs.

If investors as a whole can start viewing the Fed's tightening as a positive since the Fed views the economy as quite strong, maybe, just maybe we'll get over our current slump.

Investors in commercial real estate through real estate crowdfunding platforms like Fundrise and CrowdStreet should also see public REIT price performance as a positive sign for their private real estate investments, although each investment is different.

I'm keeping the faith.


Sam, Financial freedom sooner, rather than later