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Avram Fisher, Founder & Portfolio Manager of Long Cast Advisers, is a former equity analyst at CSFB and BMO covering industrials and business services. He has prior experience in private equity; as a corporate governance analyst; as a writer; reporter and private investigator; and as a lifeguard and busboy (I still clear plates when my kids don't). This blog is an open book of ideas about patient investing and about starting up a small-cap focused RIA. It is part decision-diary, part investment observations and part general musings. Nothing on this blog is a solicitation for business nor a recommendation to buy or sell securities. It is simply a way to organize and share thoughts with an expanding audience of independent, patient and talented small cap investors. www.longcastadvisers.com

Sunday, November 17, 2013

My Neighbor's House is for Sale

My neighbor's house is for sale. They are asking $1.425M for it ...


... I'm told they bought it in 1998 for $98,000. That's an implied 19.4% CAGR over the last 15 years. My neighbor, two Polish sisters, have handily outperformed the stock market and have roughly matched Warren Buffett over that time period. Pretty impressive though I don't expect anyone will write any books about them.

If that current rate of growth continues, in 2028, the house will be "worth" $20M.

It's almost inconceivable to imagine this: What would have to happen over the next 15-years for the value of the house to rise that much? Concurrently, if asked that question in 1998, what would the answer have been?

The rapid growth in real estate prices around NYC and - generally speaking - in many major global cities over the last 20 years has several ramifications. The obvious wealth effect benefits the few who were lucky enough to buy and retain real estate before the bubble.

As far as negative consequences, I view it as part of the larger recurring transfer of wealth in this country from the young to the old. Concurrent with other costs that absorb incremental income for young people (healthcare, older people's pension liability and student loan debt), I'm struck by the imbalance. It's a pet peeve of mine, this generational wealth transfer from young to old. It's the inverse of historical norms and incongruent with a country's long term growth and sustainability.

I don't have a crystal ball on future real estate prices and everyone knows trees don't grow to the sky, but history is rife with sustained disbelief, so the current situation can persist until it doesn't anymore. I suspect that eventually as recent progress in education and crime slips, so will demographics and pricing.

Regardless, from a non-financial perspective, I hope we get a good neighbor, so we can cut the fence between our yards and make a big space for the kids to run around. That would make a rare and unusual property. I like rare and unusual things most of all, as they tend to grow in value over time.

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