Warning: Post contains offensive language and generally bad taste.

You know how there’s people who have reached a certain age where they shake their head in disbelief at what young people find interesting and what they spend their time doing? Sadly I had that moment last week. I realized I have become so un-hip that I don’t understand pop culture anymore.

I was browsing a little website called Billboard Top 100 and realized I had no clue who Soulja Boy was, but he has the #1 song on the chart: YouTube Video

He’s apparently a 16 year old rapper as indicated by his MySpace profile. I played the song and went to take a look at the lyrics



I won’t paste the whole song, but seriously, this can’t be the lyrics of a chart topping hit:

Soulja Boy Off In This Hoe

Watch Me Lean And Watch Me Rock
Superman Dat Hoe
Then Watch Me Crank Dat Robocop
Super Fresh, Now Watch Me Jock
Jocking On Them Haterz Man
When I Do Dat Soulja Boy
I Lean To The Left And Crank Dat thing
(Now Yua!)
I'm Jocking On Yo Bitch Ass
And If We Get The Fightin
Then I'm Cocking On Your Bitch
You Catch Me At Yo Local Party
Yes I Crank It Everyday
Haterz Get Mad Cuz
"I got me some bapes today"



“He's a genius, man. It's like catching Michael Jackson before he actually hit wax. It's that kind of talent.” - Mr. Collipark (Producer of Ying Yang Twins).

Really? I might not be in the hip hop biz but I find that to be a fairly extreme statement. But perhaps I’m the one who’s clueless. A quick YouTube search brings up a wealth of children’s animated shows and movies dubbed with Soulja boy music by his rabid fan base:

Barney
Lion King
Winnie the Pooh
Sponge Bob


This guy makes the Backstreet Boys seem like Confucius. I can’t understand more than 3 of the 9 words he uses repeatedly in the song and so I went to urban dictionary to figure out what he meant by, “Superman Dat Hoe”.

I’m glad that the future of America is being raised by such great role models. Eminem might have been an offensive artist to some people, but at least he taught us to be witty and creative about the way we expressed hatred towards each other. If you’re going to be offensive, do it with some style and class.

Have you ever met people who go out of their way to emphasize how they never workout? Saying you never workout gives you an excuse for looking the way you do. It's saying, "Don't judge my potential based on the current results". It's the same as when people used to emphasize how they "never" studied in college as an excuse in case they did poorly on an exam. Maybe there are those who don't workout and others who never need to study. But I'd be willing to bet that a large portion of the population does it in secret. Some of them are insecure with the results and others feel that if they never try... they never fail.

I think it's funny when I'm flipping through someone's photos and the person always has their head tilted to one side in the same pose in every picture. It tells me that this person has clearly spent a great deal of time thinking about their most optimal angle. Who does this? Vain people, ugly people and Paris Hilton. Don't be like Paris.

Apparently there's a private equity shop named: LittleJohn

http://www.littlejohnllc.com/littlejohn.html

They've been around for years but I imagine they're taking ribs from the PE community given the recent popularity of a certain rapper who shares the same name

http://youtube.com/watch?v=aH3aNykoQf0



Can you imagine investment committee with Lil' Jon?

"Lil' Jon, what was the EBITDA projection for 2007?"

"Whaaat???"

"EBITDA for 2007?"

"Whaaaaaaaat???"

"There seems to be massive upside if you are able to dispose of the low margin publishing arm of this company"

"Yeeeeaaah!"

"I'm concerned with the amount of risk we will be taking at this leverage level. Are you sure you want to commit millions of dollars of capital to this deal?"

"Oooooooook!"

Here's an email I sent around in September 2006. Might be interesting in light of the recent subprime turmoil and subsequent flattening/decline of the real estate market.

Everyone has an opinion about real estate. People that own 1 or 2 homes feel that they have the appropriate level of experience to tout the merits of real estate as an asset class. Bill, the used-car salesman or your uncle Joe, will have a strong viewpoint about real estate investing, despite their lack of formal real estate investing experience. For most Americans the benefits go beyond monetary; the American dream isn't complete until you have a significant other, car, 2 kids and of course a house (roughly 60% of Americans today are homeowners). While many real estate owners have made a large amount of money over the past 5 years, too often people confuse being lucky with being a savvy, disciplined investor. Non-real estate owners stand in complete shock as they see how much money has been made in the Bay Area, Los Angeles, Las Vegas, San Diego, and Florida. They notice that existing investors have seen their asset valuations move over 100%, equity stakes more than tripling or quadrupling, and they become worried that they are missing the largest “get rich quick” scheme in the history of mankind. A common fear is if "you don't get into the market now, you'll never be able to get in". Remind you of 1999?

So is housing overvalued? Let’s look at who is in which camp. Those who support the theory that housing prices will come down in various regions are: The Economist, Barrons, Alan Greenspan (he uses the word frothy instead of bubble as he is partially responsible for the overheated asset class), Fortune, UCLA Real Estate Economic forecast, Business Week, and many other academic scholars. Who believes continued price appreciation? David Lereah from the National Association of Realtors (NAR), your local real estate broker, Rob Kiyosaki (Rich Dad, Poor Dad) and your cousin Louie who has made a killing buying condos in San Diego. Could it be that the only people still trumpeting the continued housing boom or “soft landing” of the market are those that stand to benefit from optimism in real estate valuations? I always look at the incentives of people providing me investment advice. Even the CEO of Toll Brothers, a large California home builder, has said “It would be difficult to characterize the position of home builders as anything other than in a hard landing”.

In history, there have rarely been examples of global or even national housing price declines. However, only real estate funds or REITs that are able to co-mingle returns from various projects in diversified geographic locations are able to truly take advantage of this statistic. When investing on your own accord, there is substantial risk given the large bet (in relation to your net worth) in one market and one specific asset class (not just real estate, residential real estate), not exactly a diversified basket of assets. A correction in one real estate market can have the effect of wiping out a young person’s entire portfolio, if highly leveraged. Ask Japanese or Hawaiian investors in the 1990s how they have done. Japanese real estate is worth approximately 60% of its peak valuation in 1990. The land constrained argument? Last time I checked, this decline happened most dramatically in Tokyo, one of the most land constrained cities of the world. The truth is, when asset valuations are sky-high, the upside becomes limited, and the downside catastrophic. Remember that commercial where a guy is trying to screw in a light bulb and he's a little bit short? The only step left on the ladder is the top one which reads, "DO NOT STAND ON". Upside: Able to screw in light bulb. Downside: Breaks his back. Doesn't really seem to be worth the risk.

People with real estate have made a ton of money in the last 5 years. If you do not own real estate, you are in the same boat as me. Accept it, realize you made money the more painful way (9 to 5 job), and move on. The last thing to do is rush into the market thinking that it is done correcting. Remember, your friend that has bought real estate at a lower basis, can see his real estate valuation decline and still come out ahead. You cannot afford that, given your timing to the market.

Other thoughts to keep in mind

Returns and Portfolio Diversification:
Real estate’s long term return has been in line with the stock market, approximately 10-12% per year. In addition, investing in the stock market has the benefit of liquidity, whereas real estate is burdened by a 6% transaction fee. Investing in real estate requires a longer time horizon than most asset classes. I am not disputing the fact that real estate is a good investment vehicle and one that should be in everyone’s portfolio. I am merely saying that I do not think it should be categorically be described as the “best investing vehicle” with guaranteed returns. Would you invest your entire wealth into Google stock if you thought it was a good pick? Most people understand the concept of buying multiple stocks to diversify their portfolio and not have their future tied to any one company or industry. But oddly enough, these same people will have no qualms about placing bets larger than their entire net wealth on ONE real estate market. Putting all your money into the real estate industry is already a risky move. Putting it all into one market is even more frightening.

Time Consumption:
People forget that buying real estate incurs substantial time management. To truly understand the returns from a standalone perspective, you must remove yourself as manager of the real estate. In other words, the investor needs to factor the cost of hiring someone to list the property for rental, take care of the taxes, mortgage, renter complaints, etc.

Building Equity and Tax Benefits:
The most common mistake people make when discussing why it is better to rent or buy is the notion that by buying a house you are building equity. Most real estate is purchased with interest only financing, which by definition means that you are not paying down principal and therefore not building equity. And in the interim, the investor will be forced to fund negative cash flows for owning the property and mortgage. What that means is that the rental income stream will not offset the mortgage, taxes, and utility bill, even after figuring the tax deductions for depreciation and interest expense. Prices have risen to the point that in some markets it is almost twice as expensive to own a condo as it is to rent one, even after factoring the tax and depreciation benefits. The only way investors can "build equity" in real estate is to bet on continued healthy price inflation, which is a risky bet to say the least. The economic incentives are just not there to own property anymore.

Sustainability of Valuation Growth:
In 2000-2001, the NASDAQ lost 70% of its value from the tech bust. Most Americans felt very little pain as the subsequent decrease in interest rates by the Fed prompted the largest home price growth in the US real estate market. Money that was pulled out of the stock market was deployed into real estate as it was seen as a more concrete investment and interest rates reached historical lows. Research has shown that in the long term, real estate tracks GDP and income growth. In 2000, I believe the real estate market was legitimately undervalued and ignored for the last decade, however I would say that real estate had reached the appropriate valuation in 2003-2004 as measured by income growth.

Tangible Value

My theory is that many consumers have a propensity to invest in real estate due to their lack of understanding on how to invest their money. After all, only a small portion of the population works in finance on a day to day basis. Given most consumers don't know much about the equity or bond markets, they turn to real estate as an alternative for their savings. It's easy to walk into a house and form an opinion about it. Much more challenging for most people to get comfortable with a large corporation. And whereas an investor in a security market buys paper stock, an investor in real estate feels he is buying something tangible. When something is tangible it gives the impression there will be a baseline value to it...the notion the value won't decline to zero. Problem is, the value doesn't need to drop to zero for an investor to feel massive amounts of pain.

Buyer Profile:
If demand for housing was truly supported by owners who planned to inhabit homes on a permanent basis, there would be much more support for current prices. However, in several markets, the primary buyer is speculative, looking to make a quick buck by buying and flipping. These are also the first people to sell if the market looks to correct as they frequently do not have the ability to cover multiple mortgage payments in the event interest rates rise.

In conclusion I think that real estate should be looked at as a potential addition to a larger portfolio rather than a "must own ASAP" asset. Young people have the ability to take risks but do you really want to be in a position where you can have negative equity and have to spend the early part of your career trying to dig yourself out? Real estate may be a great asset class, but needs to be appropriately timed. I think we can all agree that it is better to buy at the low end of a cycle and it certainly feels like the good years are past us for real estate at the moment.