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Ben Stein How Not to Ruin Your Life

Ben Stein, How Not to Ruin Your Life

Homeowners and Investors, Time to Get Real

by Ben Stein

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Posted on Friday, February 29, 2008, 12:00AM

I'm generally what people call a "permabull," in the sense that I think investors should patiently accumulate more stocks in bad times than in good.

And, as readers know, I've often said that trying to time the real estate market is a waste of time unless you're in the real estate business.

That said, a few warnings are in order so that your expectations aren't too high.

The High and the Low

First, as I see it (and I'm often mistaken), the real estate market still has some serious falling to do. I base this on the fact that real estate in some of the most overpriced markets -- like Manhattan and the west side of Los Angeles -- have yet to fall dramatically.

I, your humble servant, have been looking for a condo here in L.A. for my son, and I've been floored by how high the asking prices are for these dwellings. Yes, they've fallen, but they're still far higher than they were four or even five years ago.

Keeping asking prices high may make sellers feel good, but it won't sell their homes. Consider this: On one hand, brokers tell me that prices haven't fallen much, and that they think that's a good sign. On the other hand, they complain that sales volume is way down.

Both Sides Now

Well, friends, the former has a lot to do with the latter. Volume isn't going to pick up until prices fall to accommodate the fact that we're in the midst of a real estate collapse. And buyers aren't going to step up to the plate in large numbers until it's clear that prices have fallen to reflect the new realities of the real estate market.

This means that if you're a seller, don't count on selling unless you have a price that makes sense in early 2008. Prices that made sense in early 2006 just aren't going to fly.

If you're a buyer, my advice is to still try to buy the house of your dreams, because they come along so rarely. But try to drive the hardest bargain you can; sellers should be very flexible. I would even say that if a seller isn't flexible, wait for a better mood to strike him or her.

Again, the real estate collapse has a long way to run yet, and it'll end when sellers get realistic. That could take four years, and maybe longer. But if you need to sell, there's no shame in asking a sensible price.

Hail to the Chief?

As for stocks, there are more serious cautions. It looks possible and even likely that Senator Barack Obama will be the next president. He's promised that he'll raise taxes in various ways. One will be to end the limit of Social Security taxation, so that all income, without limit, will be taxed for Social Security.

And, although Obama hasn't explicitly called for it, he could also raise the taxation of capital gains and dividends. This will without a doubt make stocks less valuable to own -- it simply can't be any other way. If you take a bigger chunk of income from stocks away from the owners, and if you take a bigger slice out of capital gains when profitable stocks are sold, stocks become less valuable. In the long run, stocks still wildly outperform bonds and real estate. But the one-time hit to stocks from such legislation could be substantial, and the effect could last a long time.

I'm not taking political sides here, since I think taxes do have to go up unless government can cut spending. And government apparently can't cut spending.

Rise and Fall

Finally, corporate profits as a percentage of the total national income have risen dramatically in the past six years. This rise has been historically unprecedented, except for the 1920s. If corporate profits return to their historical ratio to the GDP, they could fall -- or at least not rise -- for some time to come.

Obviously, we won't know about that for months or even years. But the time to start recalculating your expectations is now. We may well have several years of serious difficulties in corporate stock gains. Is this a reason to shun stocks? No, but it's a reason to be realistic.

In the long run, you'll do fine if you stay in and be patient. But over a few years, there could be some serious pain.

A Notable Passing

Alas, a sad note. The best friend the free enterprise system had in the postwar period (besides Milton Friedman), the inimitable and indomitable William F. Buckley, passed away last Wednesday. The loss is devastating.

We'll literally never see his kind again, and we'll be the poorer for it. Buckley stood unashamedly for everything great about liberty, patriotism, and free markets. He contributed to the freedom of hundreds of millions around the globe, and to the triumph of what freedom we have left in the United States. God bless him; I hope he's now happily in the arms of his beloved Patricia.

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  • Yahoo! Finance User - Sunday, March 30, 2008, 9:43PM ET  Report Abuse

    • Overall: 5/5

    YOUR BEST ARTICLE!!!! The real estate market has a long way to fall. The good news is lumber, dry wall and other materials are starting to fall in price, thus making a home affordible down the road. Accumulate quality stocks while the market is down is a great plan. If you did this in the 70's you would now have more money than you could spend. I would be cautious in the near term because a good fall may be on the horizon when they realize this is not just a small recession. Obama..... Wants to be the black man's Robin Hood. Take from anyone who makes more than 75k and give it his Rev. Wright ecomomic plan. This is his back door REPERATIONS to his welfare recipients. Let the educated working man pay for more crack babies. If Obama gets elected SELL YOUR STOCKS and then buy them back at the end of his only term!! Corporate profits are going to fall no matter who is in the White House, but Obama will drive our economy into the ground while providing a free ride fellow Trinity Church types. If one of the other 2 choices win, invest in solid companies and in the end you will come out for the better because of it. God Bless Mr. Buckley.

  • D - Monday, March 17, 2008, 2:55PM ET  Report Abuse

    • Overall: 2/5

    The best part of your article Mr. Stein was the eulogy of Mr. Buckley. Best of luck with your son finding an affordable condo in LA. - Maybe you can just get him a nice car he can live out of for the time being..........The way to rescue the economy is to have Harvard divest half of it's endowment in foreign countries.....yes even Israel.....and put it into U.S. treasuries........Maybe some of the other Ivy leaguers too, like Yale...... Suggesting Barack Obama will raise taxes if he becomes President is irresponsible........remember the "Peace dividend" during the 90's with Bill Clinton in office after the Cold War......stocks did pretty good then!........How much will John McCain raise taxes to keep funding the war in Iraq???........How about a nice "Peace dividend" in the next administration whichever candidate becomes President.

  • Robert - Saturday, March 15, 2008, 9:39AM ET  Report Abuse

    • Overall: 5/5

    Ben...as I said to you in Concord: "You are the greatest!"

  • navi - Friday, March 14, 2008, 5:59PM ET  Report Abuse

    • Overall: 1/5

    I just love how full of himself ol' Ben is. his comments and opinions and predictions are almost all post hoc. the truth is, he knows as little about the markets etc as all the other 'experts ' paraded about here. give us the monkey and the dartboard instead, not a glib lawyer.

  • Ronald - Friday, March 14, 2008, 3:48PM ET  Report Abuse

    • Overall: 5/5

    Overall, sound practical advice again from Ben. However, I still don't understand why the "small" sub-prime collapse has such a ripple effect, and I haven't spoken to anyone who does. I would like Ben to give us Economics 301 (we got 101 and 201) on how and why this 3% of the entire housing market has had such an impact. What went wrong beyond these stupid mortgages, and why did it spread despite efforts to contain it? Why is Bernake creating (nearly) a trillion dollars to try to stave this liquididity crisis off, and still with little response in sight? In short, what the heck is going on?

  • Yahoo! Finance User - Thursday, March 13, 2008, 12:54PM ET  Report Abuse

    • Overall: 5/5

    Another well-thought-out, down to earth article from Ben. Keep up the good work.

  • groblix - Tuesday, March 11, 2008, 2:39PM ET  Report Abuse

    • Overall: 1/5

    More "faith-based finance" from a right-wing nut job who doesn't even accept science.

  • El Viejo - Tuesday, March 11, 2008, 2:08PM ET  Report Abuse

    • Overall: 1/5

    oh oh .... "a few warnings are in order so that your expectations aren't too high ?" .... what's the matter Ben, had a few beers with RoKi and now you come over to the dark side ? ..... ha !

  • Yahoo! Finance User - Monday, March 10, 2008, 11:57AM ET  Report Abuse

    • Overall: 2/5

    Ben Read This: You say, "I'm not taking political sides here, since I think taxes do have to go up unless government can cut spending. And government apparently can't cut spending." By making this comment, you are explicitly condoning the reckless and irresponsible government spending that has been out of control by both parties in our recent history. From pork barrel subsidies to earmarked special interest "gifts," do you actually believe that the majority of American people agree that the irresponsible spending of our tax revenues by our government is something we can only shrug our shoulders to? On top of this, you appear to be resigned to believing that raising taxes, rather than letting businesses and individuals keep more of what they earn to produce more jobs and more goods and more services more productively in a global economy, is the answer we should be resigned to accept. Are you suggesting that an "American brand of socialism" can accomplish something better than what a free-market model is trying to produce and maintain? Ben. Please. You have a considerable influence to express your voice and be heard. Rather than saying most of us appear to be absolutely powerless to address the gorilla in the room, collectively, the representatives and the legislators that contribute to this country's dangerous spending as if we all have a doomed deficit addiction, please use the energy and power you have to instruct your readers on how we can choose NOT to remain powerless. I think this would be a far more responsible and appropriate way to "spend" your talents, and would produce for your readers a far better return on the attention they invest in your writing. Let's all try to be a little more responsible in how we invest and dispose of the limited resources we have.

  • Yahoo! Finance User - Monday, March 10, 2008, 11:01AM ET  Report Abuse

    • Overall: 1/5

    How can you take this nut case seriously ? See his endorsement of intelligent design !!! Real science leads to Hitler per Ben - unbelievable

  • Yahoo! Finance User - Monday, March 10, 2008, 10:29AM ET  Report Abuse

    • Overall: 1/5

    I can't believe this "expert" says that the stock market will always out-perform real estate. If you are a full time time investor, you can follow the best markets across the country. When the stock market gets goes wrong, you can't travel to Arizona and find a better stock. Investors take note: from now until the next year, when over 1 million more properties are foreclosed, banks will be owning more and more properties which will make them more and more motivated to sell. Any smart investor should realize this, and will be taking advantage. You don't even have to be an investor to take advantage, any home buyer should have been doing their homework. If you are buying a house in todays market, and are paying any more than 90% of the asking price, you are paying too much!

  • John - Sunday, March 9, 2008, 11:18AM ET  Report Abuse

    • Overall: 5/5

    Thank you, Mr. Stein, for your comments and insights.

  • Ben - Saturday, March 8, 2008, 9:35PM ET  Report Abuse

    • Overall: 5/5

    Ben, I appreciate the things that you have written. I agree that keeping stocks for the long term right now might be a choice to be over looked. With the price of gold booming and the dollar slipping, I cant help but be doubtful of the stockmarket to come. Dont listen to all the crapt 1 star ratings people are giving you. Five stars for Ben Stein baby!

  • Yahoo! Finance User - Saturday, March 8, 2008, 3:54PM ET  Report Abuse

    • Overall: 1/5

    I can't believe he is still telling the public to buy stock. This is the same genius that said that the sub prime mortgage problem would only be $30 billion dollars. If you want to survive the upcoming depression, buy some gold and silver. Also, get out of debt, and save at least 18 to 24 months worth of cash to cover expenses. Ferris Bueller would not be proud.

  • steve - Saturday, March 8, 2008, 9:43AM ET  Report Abuse

    • Overall: 1/5

    What an A$$. If you all can remember, he was the one first out to say the mortgage crisis was overblown. He showed how the damage was and would be minimal. How do people like him stay employed???

  • Kevin - Friday, March 7, 2008, 9:42PM ET  Report Abuse

    • Overall: 3/5

    Backpedaling a bit too much, Ben. Yes, real estate is deflating, along with the egos of those starstruck buyers of overpriced property who just got caught in the mindless herd. The real problem is the 200 million people in America who are now spooked into recession thinking, because of overhype of the real estate meltdown. Democrat? Egad! Who really cares if Exxon's profits drop from 40 billion to 20 billion...in the timeless cycle of social justice, the wealth needs to decentralize on schedule. The factories are still running, the stores open at 9 every morning, people go to work everyday, China is getting bruised with product defects and internally from a restless population that wants more than pitiful subsistence factory living. America needs a time out, a reorganization, of money, priorities, entraupeneurship. We will emerge from this shadowy house of mirrors into a clearer future. 2009 will be a good year.

  • Humbert - Friday, March 7, 2008, 10:07AM ET  Report Abuse

    • Overall: 1/5

    Ben, I recall a certain article that you wrote over the summer about how the subprime crisis was overblown and that the economy was doing just fine. OK, that was so completely wrong it is absurd. Misinformation is much, much worse than no information. We are in recession and we are just beginning to really appreciate the scope of this credit crisis. Ben, the Carlyle group is having trouble meeting debt payments!!!! Then there was your very public slander of Goldman Sachs. Not a big fan of investment banks but then again you have a responsibility as "journalist" to exercise some discretion and have a little evidence before you make wild accusations. You know what I thin? I think you you just need a lot of attention. I mean you did that stupid gameshow on MTV. What was it? Win Ben Stein's money? Movie parts, columns etc. So you just say stuff to be provocative or just simply contrarian in order to attract attention to yourself. Ben, time to take a break. Dial down the ego. Blowhards are a dime a dozen.

  • Yahoo! Finance User - Friday, March 7, 2008, 2:28AM ET  Report Abuse

    • Overall: 1/5

    How many times does this guy have to be really really really wrong before people will wake up to the fact that he has no more interest in the welfare of others than Bush does about gay atheists? As i shake my head and wonder how, just how, anyone can give this old fool a high star rating I remind myself that Bush was voted in for president - twice! "YES WE CAN"

  • Yahoo! Finance User - Wednesday, March 5, 2008, 8:40PM ET  Report Abuse

    • Overall: 3/5

    Interesting to know

  • Yahoo! Finance User - Wednesday, March 5, 2008, 6:08PM ET  Report Abuse

    • Overall: 5/5

    Just what America needs a civil rights lawyer as president! Let's tax the ordinary, middle class, people; sell out America's future and write some more food stamps for the crack heads. --- I'm not an American but if Obama gets in I'm getting my money out!!!

  • Matt - Wednesday, March 5, 2008, 2:30PM ET  Report Abuse

    • Overall: 4/5

    The permabull has turned bearish! BUY!! BUY!!! BUY!!!!

  • JAMES - Wednesday, March 5, 2008, 12:19PM ET  Report Abuse

    • Overall: 2/5

    Make up your mind, Ben. On feb. 14th you advised us not to panic and sell. This time you tell us it probably will be tough in the stock market for the next few years. How about the next column just says you don't have a clue.

  • MushahidA - Tuesday, March 4, 2008, 11:10PM ET  Report Abuse

    • Overall: 4/5

    Personally, I can't stand his politics. Nonetheless, I must say that there is true wisdom to be found in his articles, that I could care less if his prediction about the market come to fruition. The undertones are simple: stay disciplined, do your homework, keep investing in stocks, diversify, its not rocket science. BTW I'm with him totally on his assesment of the Real Estate market. His articles act as reminders, good advice never gets old.

  • Rock - Tuesday, March 4, 2008, 10:27PM ET  Report Abuse

    • Overall: 2/5

    Hey Permabull, If you are buying properties, I will suggest you buy after insurer like Aviva, Prudential, AXA, CHASE, JP Morgan announce on their write off. I think you will be getting a better price.

  • fred - Tuesday, March 4, 2008, 10:01PM ET  Report Abuse

    • Overall: 5/5

    The man is talking sense, and the most sensible, unfortunate, comment may be that government is apparently unable to adjust spending. Pray and prepare to make adjustments on yor own

  • Erik M - Tuesday, March 4, 2008, 9:45PM ET  Report Abuse

    • Overall: 3/5

    The value of anything is determined by what someone is willing to pay for it. That being said, I feel that at least 20 of the 30 Dow stocks are either undervalued or fairly-valued. We are at a Dow P/E of 14, not 30 like the crash of '29. I think that people also know that housing is small part of the economy and that overall, the economy is pretty healthy. The people that will get burned are the flippers and speculators -- the very people that have the money to risk. Only a small portion of people will 'lose' money on their houses and hopefully they will learn from their mistakes. Yes, inflation and gas are eating up the American paycheck, but living within/below your means still holds true. Maybe a recession/depression/crash will be good for America because then we will revert back to the things that really mean something -- family, laughter, song, togetherness, and entreprenuership.

  • Yahoo! Finance User - Tuesday, March 4, 2008, 7:21PM ET  Report Abuse

    • Overall: 4/5

    Very correct on the housing situation. To me, it's laughable. I keep hearing people say "now is the time to buy...you buy when it's low". Okay Rothschild, yes, you buy when bloods in the street; but, that's not the case yet. People are still pretending their home is worth something. Trust me, it's not. Home prices have come down, but not far enough. Why? Because nobody is buying! The REAL price is what someone will pay. The fact that no homes are selling proves the REAL price is much, much lower than what we are seeing today. True story: Here in Pasadena, CA, my friend purchased a home in 2005. He paid $565k. In 2006, he sold (this was the ONLY offer after 6 months on the market) for $690k. The buyer was someone who put $ZERO down and was able to get 2 (first and second) mortgages with ridiculous terms. Well sure enough, the buyer defaulted, almost immediately. The note holder is unloading it; and it is now in escrow for $519k. That's the REAL value of the home that sold for $690k just 14 months ago! Get real people. The price you can get fro your home, if you HAD to sell it within 120 days is the real value of your home. The reality is, that amount is likely 30-40% lower than the 2005 peak. Sorry.

  • Yahoo! Finance User - Tuesday, March 4, 2008, 6:54PM ET  Report Abuse

    • Overall: 2/5

    Buy an electric car and save money. The best source for electric modes of transportation is www.goelectricnow.com an you'll find all the info you need there. Save money by going electric.

  • __A_YAHOO_USER__ - Tuesday, March 4, 2008, 3:55PM ET  Report Abuse

    • Overall: 1/5

    Ben, you are an idiott. I remember how you laughed at every thing what Peter Schiff said on one of the finance news channel. Last August you said Buy Financials - they are at such low PE - they are giving it away in a "cereal" box. And you argued with Peter when he said "Stay away from Financials, they are toxic..." Clearly you have no idea and no far-sight. So who are you to offer this market commentary. You should just hide in shame as people who may have followed your advise are more than 50% down. And you are a shameless Republican too to defend how dumb Bush is. On CNN Larry King, you said "Oh he is the president, he does not need to know how much the gas cost..." You and people like Payne and Kramer are pathetic. But got to give it to you guys that inspite of all dumb ideas you give out on a regular basis, people like you still have the courage to come out with more and more. You people just do not get it, Do you...?

  • Yahoo! Finance User - Tuesday, March 4, 2008, 3:07PM ET  Report Abuse

    • Overall: 5/5

    MD Dooley Look at inverse etfs SKF,QID,SRS,SDS.Look at GLD,SLV. The rats (Demos/Repulicans) sold the country down the river.Economically speaking,the US is so far past F...ed,that it couldn't take a bus back to F...ed.

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