Reacting to the Newspaper

I can’t read the newspaper anymore without getting an incredibly strong urge to post. I need a two way medium and the newspaper (online and offline) is still a one way medium.

So I’d like to start doing short posts with my quick thoughts on stories.  Here it goes starting with today’s New York Times.

Internet Injects Sweeping Change Into US Politics – Are you surprised?  I’m not. "The Internet, they said, appears to be far more efficient, and less
costly, than the traditional tools of politics, notably door knocking
and telephone banks." The only thing surprising to me is that it took them ten years to figure this out.

Death By Smiley Face – When Rivals Disdain Profit – A story about "the zero billion dollar business" phenomenon is interesting, but it features, which I doubt disdains profits if it has taken close to $10mm in venture capital from Bain and Ignition (something I’ve heard but not verified).

Selling Short The Virtues of the Short Seller – Joe Nocera is generally spot on in his columns which don’t get nearly the readership they deserve because they are stuck behind the Times Select wall (and thus no link love on this story).  Short selling is a critical component of any true market. One of the five things I learned in business school is that a market is composed of speculators and hedgers.  You wouldn’t be able to hedge a position in a stock if there weren’t short sellers willing to take part in the transaction.  Anyone who engages in the vilification of short selling should take the time to understand how valuable short sellers are to a properly functioning market.  Nocera nails this issue.

Calculating What To Pay For A Home – There were actually two related stories in the paper today talking about the research two professors in Claremont, CA did on the housing bubble.  They focused on housing prices as a function of the rental income the homes would command. This approach (as opposed to focusing on comps which is what most brokers want you to do) is the way I’ve always thought about real estate. It is directly related to the notion that a business should be valued as the net present value of the cash flow it generates.  And so a home should be valued at the new present value of the net (after expenses) rental income it would generate if it was rented out instead of lived in.  I have generally felt that 20 times annual rental income is a good proxy for what a house should sell for.  That number (20x) is obviously a function of interest rates, the tax deductibility of mortgage interest, the real estate tax rates, and a host of other less significant factors. It would be great if Zillow and the other real estate value services would give you rental data for houses in your area.  I think that would be a great data point that would help people get a good sense of what to pay for (and what to sell for).