Blessed by the Potato

I’ve long lamented the use of so-called “clean” offers common in GTA bidding wars, where people bid massive amounts on a property with no conditions to protect themselves. It felt like the boy who cried wolf — for so long I’ve been warning people not to do that because in in the unlikely event something goes wrong, it can blow up very badly — damages in the hundreds of thousands can break a regular family’s finances. Yet for so long the market just kept going up and lending just kept staying loose and people ignored that advice.

Of course, at the end of the story there really is a wolf. And as the white-hot spring 2017 market cooled a bit, we got a few deals that couldn’t close and some court cases making the news. There’s a Reddit thread with hundreds of comments on this story, and at a quick glance most of them seem to be about the fact that there was no financing condition.

“But all the other offers are without conditions.”

Look, this is as close as you can possibly come to that cliche mom advice: if everyone else jumped off a cliff, would you do it too? If you actually need financing to close the deal, then you need a financing clause. If a rich person who doesn’t need financing or a foolish moister with a realtor whispering in their ear is bidding against you with a naked offer, then accept defeat (and subsequent teasing about being a forever-renter basement-dweller) gracefully, rather than jumping off the cliff with the rest of the lemmings.

I can understand that realtors are in a conflicted position, and are more interested in closing a deal than protecting their clients, so they collectively pushed the herd to this madness of unprotected naked offers becoming the standard, something you “had” to do when making an offer. But hopefully people will heed the warning of the judge in this case and stop that nonsense (though a cooling market may stop it naturally as bidding wars die down and people go back to negotiations with one prospect at a time). A part of me hopes the would-be buyers sue their realtor for pushing them to put in a naked offer when the deal was truly contingent on financing, but I suspect in reality it’s more likely the realtor will sue them for the commission lost when the deal fell apart, adding insult to injury.

And as long as I’m ranting and reminding people that there is risk in real estate: financing of a preconstruction is not guaranteed. If you’re not rich enough to have a substantial cushion to close even if the market value at completion is a fair bit below the price you contracted for (which you still have to pay), you’re not rich enough to play in pre-con.

I haven’t really blogged much about the real estate market: the core rent-vs-buy lesson hasn’t changed, and there isn’t much that happens in real-time to talk about. The 30% year-over-year gains of Spring 2017 have cooled, which not many were surprised at, and it will take years to see how it plays out from here. However, while I know that life is hard (very, very hard) to predict and forecast, there are a number of things that have surprised me:

1. How fast the turn was, especially in parts of the 905. The market was totally coked-up-banana-pants-insane last spring. Then it wasn’t, and prices started to drop. The Stouffville case at the top of the post is an extreme example, but 10-20% decline in under a year is unheard of. For years when people tried to brush off the US housing bubble experience, one of my main points was that the subprime crisis was mostly an accelerant — even without subprime, we were still vulnerable to a crash, but that it would just happen slower. Instead, Markham is on track to out-crash Pheonix, Miami, and Vegas. Surprise! (Though this one comes with a bit of an asterisk as there was a government intervention in the form of the foreign buyer’s tax).

2. That condos are holding up while detached prices tank. This one can likely be blamed partly on AirBnB, partly on people buying what they can afford after being priced out of detached houses in the frenzy. But that’s a complete surprise from what many who joked about Toronto’s official bird would have expected to see when the market started to turn.

3. How many AirBnB units there are. I mean, Toronto wasn’t exactly lacking in hotel space for tourists from what I know. And the model of renting out a condo as a luxury hotel was, by all reports I’ve seen, a rather famous flop at the buildings designed for it (esp. Trump). Yet there are thousands of units in the city, despite being of questionable legality even before additional rules came out.

I’m sure there will be lots more surprises in the years to come.

Way back when I was getting ready to launch The Value of Simple, I set some definitions for success. I hit “not-failure” pretty quickly, but have only just reached “success”: I’ve made minimum wage (at least, a rounded-down amount that approximates what minimum wage was back in 2014 and ignoring all post-publication effort) on the time taken to write it!

Now, it’s felt like a success for far longer than that. Seeing that it’s actually helped people invest, is getting good reviews, and seeing people wholeheartedly recommend it to their friends made the whole endeavour feel worthwhile. But I still had that first monetary definition in the back of my mind… so hitting it still feels like an added accomplishment.

I had also said that that was about the point at which I might consider doing the whole grind again. As it happens, I do actually have an idea for another book that I might do next…

…But I don’t think I will go anywhere with it, at least not in the near term.

Getting VoS done was a personal triumph in working hard/side hustling/project management/etc., and a personal best for productivity. But burnout is a thing. These days my inbox and to-do lists are filled with small side projects that I can’t get around to completing on time (that tax video doesn’t look like it’s going to happen before taxes are due, for example) — I’m not in a hurry to dive into a major one.

Anyway, a big thanks to everyone that helped make this a success: people who bought copies, recommended it to their friends, took the time to write reviews, read beta versions, and more that I’m sure I’m forgetting!

Lots of people have been talking about Vanguard’s all-in-one ETFs that launched fairly recently. Dan @CCP talked about them in the back half of this podcast (and the first half is with me if you missed it :), and has a whole separate post on them, and likely will have another in the future as they’re generating a lot of discussion and questions.

In general, I like them: for a modestly higher MER, you get a one-stop investment portfolio.

One point I really like about them that hasn’t been talked about much is the fact that there is only one thing to look at for your portfolio. We talk a lot about the importance of having balance and diversification — so much in bonds, for example, to limit the losses you might experience in a market crash. However, in the moment people rarely look at their overall portfolio and say “Well, I’m only down X%, which I was prepared for, and my bond allocation is doing its job so all is good.” No, instead we tend to focus on the biggest, reddest number on the screen — and of course in a 3 or 4 fund portfolio, you’ll see each position individually, and have to do some math to see the portfolio as a whole.

With an all-in-one fund, you will only ever see the portfolio as a whole. You won’t second-guess your international fund during Brexit, your bond fund when interest rates are hiked, or your Canadian index fund when oil tanks. And there is a lot of investor behaviour management in the simple fact that in a diversified portfolio there is always at least one thing that is disappointing (under-performing the rest if not actually down). Not to mention in a crash — it’s hard to tear your eyes off the big red number on your losing-est fund and feel like the world is ending when that’s all that’s in the news, even if the rest of your portfolio is holding things together reasonably well. These funds will help avoid all that, and that’s the main reason I’m a big fan — all-in-one funds are best positioned to help actually match up that notion of risk tolerance for your overall portfolio and what you really see when you check in on your portfolio.

Now, these new funds do not mean that these ETFs are making Tangerine, TD e-series, or robo-advsiors obsolete. They do make investing in ETFs easier: just one thing to purchase, and no rebalancing. But you still have to deal with buying ETFs, which can’t be automated like Tangerine or TD e-series mutual funds can be. It does slightly complicate the nice one-dimensional relationship between cost and complexity that was the choice between Tangerine/robo-advisors/e-series/ETFs before. One-fund ETFs will be cheaper with automatic rebalancing, while e-series will have manual rebalancing but the ability to set up automatic purchases, and avoids the more complicated order entry of ETFs (rounding down to whole units, limit orders and bid/ask prices, worrying about market hours, etc.). I still think that overall I’d put one-fund ETFs to the right (i.e. more complex overall) than TD e-series — while rebalancing can be a pain and a bit confusing, you don’t have to do it often, while making regular purchases as easy as possible is more important to long-term success.

And if you are interested in these ETFs, you have to let the simplicity work. I mean, that’s what you’re paying extra for. I’ve seen hundreds of questions and thoughts since these launched in various blog comments and forums where people are trying to tweak the allocation to what they really want: buying VGRO and a bond fund for example, or buying both VGRO and VBAL to get an intermediate bond allocation. Just like with Tangerine’s funds a key point is to just round your desired allocation off to the nearest 20% or so to fall in to one of the choices on offer rather than trying to get lost in the details. Once you try to add more funds into the mix to get what you really want, you lose the whole benefit of the one-fund simplicity: buying more than one fund means it won’t automatically rebalance any more, and at that point you might as well buy a third (or fourth) fund and save the extra cost on bundling it up.

This year I’m trying to make that health improvement thing real. As announced last quarter, I’m cutting the price of the course until I get my weight under control. In a quick update a few weeks ago, I mentioned that I lost a bunch of weight while I was sick with the flu. And as I suspected, I gained most of it back. However, I managed to keep off over 2 pounds (but not quite 3) in the quarter. That’s not the pace I’m aiming for, but at least it’s moving in the right direction and it’s a big enough weight loss that it should be real (and not just measurement noise). I’m looking on the bright side, here.

I was just a half a pound shy of hitting the first threshold to bump up the price of the book and course, so the price stays the same through the spring. It’s hard to exactly quantify how much revenue I’ve lost because it’s impossible to know the price elasticity — how many people would still have paid the higher price — but for the sake of motivation I’m assuming it’s nearly everyone and that junk food and laziness is costing me a new computer at this point.