Right now, I’m about halfway through the Black Swan, written by Nassim Nicholas Taleb the same author wrote one of my other favorite books, Fooled by Randomness: The Hidden Role of Chance in Life and in the Markets.
The combination of reading this book, and recent world events are leading me to become much more contrarian. Translated, that means I’ll probably be more of an asshole in the future, so I’ll just go ahead and apologize now.
In general, I find myself questioning much of the conventional wisdom upon which I have relied in the semi-recent past. I consider that which is founded upon a grain of truth, will become less correct as more people believe.
Among that conventional wisdom is the idea that homes are good investments. Obviously this is proving false for many people at the moment. I suspect many people who are now hurting are the ones who bought into the conventional wisdom (a conventional wisdom sold, in part by President Bush (although I suspect many others from all political spectra did the same)).
I also find myself having less trust in the stock market. Yes it has had a good run for a long time. But you never know when something horrible is going to happen, not just in the market, but in the world or to the country: a president can be assassinated, a military coup can begin, a nuclear accident or natural disaster can happen.
Along the same lines, I put less faith in privatized social security (not that I have more faith in the current system), or whichever plans would let people invest more of their own money. The problem, I think, would be of supply and demand. The supply of good stocks would remain relatively stable while the demand for them and for other stocks would go up greatly. In other words, a lot of people (at the government’s recommendation) would be putting a lot of money into a lot of bad investments.
I’m also less impressed with free markets. It isn’t because they don’t work. It’s because they don’t work as well as advertised. Part of it is overselling by economists. Most of it is because whenever proponents do manage to carve out a free market in bureaucratic mountain, the free market is quickly limited by its surroundings. Electricity markets, of which I know a thing or two, are prime examples. The markets do an exceptional job of pinpointing where investment should be made. The ability, however, to actually make those investments is extremely limited. To build a power plant or transmission lines is a red-tape nightmare that I fortunately do not have to deal with.
Regarding home investments:
That topic was covered in “Rich Dad Poor Dad.” Though I’ve heard that book was bologna in many aspects, it does point out (I think correctly) that your home is probably not going to be a good place to sink your investment dollars. If you haven’t read the book, the author describes an Asset as something that puts money in your pocket over time and a Liability as something that doesn’t. With homeowner’s insurance, property taxes, mortgage interests, maintenance costs, and sales commissions, your home ends up really costing you a lot more than you might realize. That doesn’t even take into account your most precious asset — time — that you devote to managing any upkeep and upgrades. Who wants to trim hedges every weekend?
Among the most interesting, if least easy to prove, criticism of the author is that he had no discernible wealth before he had the book published.
Also, another cost associated with owning a home is a lack of mobility. Apparently some people get financially tied to their house and are then unwilling and/or unable to leave town to pursue better opportunities.