Comment by ChuckMcM | Hacker News Reader

Comment by ChuckMcM | Hacker News Reader

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I completely understand your dilemma. In 1999 I was looking at my Sun stock which, if I had sold it, I was going to pay probably close to 35% of its sale value in tax. I sat on it.

Just before the Oracle sale when it did a reverse split to get back over $10 a share I sold it for less than 5% of its value from 1999.

That taught me a very painful but very solid lesson. You take profits because they are profits, not taking them puts them at risk. When Facebook went public its stock went down. When it got to about 1/2 its opening price I bought some. When the value of that holding doubled (100% return less taxes) I sold it. Had I kept it I would have more now, the profits from that sale helped fund a purchase of some Tesla, which I sold when it doubled in value. Which has helped in other purchases.

Translating that back to your situation, if you're in real estate and you have some solid gains, consider selling, getting the gains and then re-investing in additional real estate to continue to ride the bubble. By taking out profits over time you may not make as much as you could but you also won't lose as much as you could.

Translating that back to your situation, if you're in real estate and you have some solid gains, consider selling, getting the gains and then re-investing in additional real estate to continue to ride the bubble. By taking out profits over time you may not make as much as you could but you also won't lose as much as you could.

There is always the possibility you will lose more by moving the funds. Like if Facebook had fizzled, that move would have lost you money.

I think it is a bit more nuanced than that. You can always lose all the value in an uninsured investment. But you can't lose "more" than your initial investment if you take profits and move to another investment. The worst case is you lose the amount of your initial investment minus any profit you took out.

You could have the situation you by 100 of A at $10, for $1,000. Then you sell it when it goes up to $15, and after paying fees/taxes keep $250, then invest the $1,000 in B at $10 each. And B craters and you lose all of the value in B.

In that scenario you lost $750. ($1,000 lost in B, $250 gained in profits from A).

Now its true that A could continue on its path to $20, and had you kept it you would have instead made a profit of say $750 after taxes and still have your $1,000.

What I learned in 1999 was that that is not a good strategy. But it is the first strategy that everyone sticks with it seems (and certainly I was holding on to!), "Hey this has doubled in 5 years, in another five it will double again!".

And part of my thinking was "Gee if I sell it I'll have to pay all these taxes, I'd much rather think of my self as having a net worth of $x rather than $0.66x." Lesson learned.

Youth is wasted on the young.

I think the real value of the advice to start investing early is nothing to do with compound interest.

It's that you do all the stupid stuff when it's only $5k to lose instead of 25 or 50.

I see the point you're trying to make, but I'm less convinced it applies to real estate.

For one thing, real estate doesn't seesaw with such ferocity as stocks. Sure, bubbles form and prices crash. But the floor for real estate is that people need a place to live, and population goes up. A stock can go to zero, while a house can be underwater (figuratively, let's hope), which matters if it's financed. Stock options can become worthless, while land very rarely becomes worthless.

Buy and hold is an option with real estate, because in general the asset price will at least track inflation at a minimum. It doesn't rot like an overripe banana like in your Sun stock example, where holding it too long was a punishment.

Real estate developers will sometimes take a condo project and turn it into rentals if the market turns before they're done with construction. The reverse can happen, rentals can turn into condos in a hot neighborhood. Those aren't the only elements to consider, but for an illiquid asset real estate is surprisingly flexible, as I'm finding out.

Put aside the fact that I can't live inside my stock options if I need to downsize my expenses.

   > Put aside the fact that I can't live inside my 
   > stock options if I need to downsize my expenses.

None of this applies to your primary residence, the original post that I responded to was explicitly "real estate as an investment". I am very much in the camp that your primary residence should be evaluated against your current life goals and constraints. It is also why net worth calculations don't include it.

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