The Van Tharp Institute |
February 16, 2005 � Issue #207 | |
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Tharp's Thoughts Weekly Newsletter |
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Feature Article 1 Benefits Of Systems With A High Winning Percentage, by Chuck LeBeau
F-r-e-e Online Tutorial Low Risk Entries With Pre-construction Investing? By Dr. Chris Anderson
Trading Tip Useful Valuations & Conclusions, Housing Bubble or Housing Bull Part VII, by D.R. Barton, Jr.
Recommended Reading When You Are Troubled
Listening In What Attendees Said About The Recent ETF (Exchange Traded Funds) Workshop
BENEFITS OF SYSTEMS WITH A HIGH WINNING PERCENTAGE by
Chuck LeBeau (Comment from Van Tharp: It's important to note that some people design high probability systems that have a negative expectancy (i.e., when they lose they lose big). Our How to Develop a Winning System course will give you all the pros of cons of this and many other system strategies)
Editors Note: Throughout the issues you will see certain words with odd spellings, such as Fre-deom and mort-gage. This is because spam filters are likely to block message that contain certain words and this is one solution.
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This week's F-r-e-e On-Line Tutorial Low Risk Entries With
Preconstruction Investing?
Education brought to you in a brand new way. Follow the link below and join us in this fun new way of learning.
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Trading Tip by D. R. Barton, Jr. Housing Bubble or Housing Bull Part VII: Useful Valuations & Conclusions In my last article, we took some time to reflect on the data provided during our series. I drew the conclusion that most of the data points to an extremely over-priced housing marking. BUT we also talked about the wildcard that continues to drive the housing market � demand. How much more unmet demand is out there? That�s a question that is incredibly difficult to answer, but it is not slowing down yet. A key issue that I mentioned last week which could help you make housing market investment decisions is the issue of fundamental values for housing. How do we determine when housing is fundamentally over-priced or under-priced? Several people have come up with a formula of median home prices compared to median annual rents for a given area. (In my research, I couldn�t determine who came up with this idea first.) This gives us some sort of fundamental valuation for housing, much like a Price-to-Earnings (P/E) ratio for stocks. Edwarn Learner, a UCLA economist, did a study of the largest nine metropolitan areas in the U.S. using this fundamental valuation of homes as described in the previous paragraph. The number had gone up by an average of 40 percent over the five year period leading up to 2002. That is a strong appreciation in fundamental value, and obviously is much ahead of inflation. In a quick check of two of the areas, the number is still going up in the last two years. When stock P/E ratios get overvalued, we look for a correction in the market. The same could be said of housing prices, with two caveats. The first is that the housing market tends to move much more slowly than the equities market. The second is that we still have the overwhelming issue of continuing strong demand, that shows no significant signs of slowing. So what can we conclude? At minimum, residential housing is certainly not the �no brainer� investment that it has been in decades past. Care should be taken in evaluating real estate markets before jumping in. But one additional item needs attention. Real estate is a very regional market. Some areas are much closer to �bubble status� than others. Take a close look at the historical fundament valuation for houses in any area you�re considering. This could be the first hint of whether prices in that market have reached unsustainable levels. The bottom line: I�m not ready to call it a housing bubble just yet. But prudent investors will do much more homework than at any time in the recent past if they want to make money in residential real estate. The first chink in the �housing demand� armor that is currently protecting the real estate market could start a downward spiral that would like many other bubbles that have been experienced in the financial markets. In most areas, caution is the watchword.
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Recommended
Reading:
When You�re Troubled � The Healing Heart - James Sloman Jim Sloman�s book, "When You�re Troubled, The Healing Heart", is an inspirational book offering assistance no matter what challenges you may be facing in your life. It�s the perfect addition to your library or an exceptional gift for friends. The book covers clear and practical universal principles concerning:
Whatever your age, your background, or situation, you can greatly enhance and even transform your life by spending some time with this unique book. 504 pages, $35.00
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Feedback from Van Tharp's Recent Exchange Traded Funds Workshop:
For those of you who called to say that you'd like to see this course offered again this year, stay in touch. This first course was excellent and we are looking at dates now to fit in a second course this year.
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Van Tharp's Most Recent Market Update including the 1-2-3 Model and the Five Star Model. |
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Quote of the Week:
"Do, or do not. There is no 'try'." |
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