I was riding the subway in Toronto today. There were two guys standing around talking about the Toronto and Vancouver real estate markets, and about how easy it is to make money in real estate. I have learned one thing over the years when people are standing around talking about how easy it is to make money in real estate, the game is over.
John Kenneth Galbraith was a well-known economist in the 70s and 80s and wrote a large number of books in his chosen field of Economics. One of his relatively short books is the one mentioned above.
The book is well worth reading as it is a concise discussion of financial euphoria. The concluding paragraph of the book is well worth repeating:
No one concluding an essay such as this can expect to escape the questions: When will come the next great speculative episode, and on what venue will it recur – real estate, securities markets, art, antique automobiles? To these there are no answers; no one knows, and anyone who presumes to answer does not know what he doesn’t know. But one thing is certain: there will be another of these episodes and yet more beyond. Fools, as it has long been said, are indeed separated, soon or eventually, from their money. So, alas, are those who, responding to a mood of optimism, are captured by a sense of their own financial acumen. Thus it has been for centuries; thus in the long future it will also be.
And so it goes in the current market euphoria. This time, it’s different, the market will continue to defy gravity and keep on going up.