The MLS hasn’t been updated, but according to a plugged-in tipster the sale of 228 Mallorca Way in District 7 closed escrow today with a reported contract price of $1,170,000.
Once again, this “prime” three-bedroom Marina condo with two parking spaces was purchased for $1,225,000 in May of 2004. And prior to that, purchased for $1,100,000 in the year 2000 (but then subsequently remodeled to the tune of $200,000).
Apples To Apples (To Un-Upgraded Apples) On Mallorca In The Marina [SocketSite]
San Francisco Real Estate Districts: Maps And Neighborhoods [SocketSite]

47 thoughts on “Apples To Apples Even The “Prime” Fall Down (228 Mallorca Sells)”
  1. So much for the “prices in D7 aren’t falling by much at all” wishing statements posted occasionally here.
    That’s a 2003 price. 2004 went by so fast!

  2. it is really no surprise for some housing prices to fall to 2000 levels… the year 2000 itself was a bubble year in SF RE valuations.
    I’ve been very confident that much/all of SF would fall to 2000 valuations (adjusted for inflation). I’ve even suspected it may fall further than that.
    I wouldn’t use this property to “prove” that we’re at 2000 pricing overall yet… but it is one more data point showing the possibility.
    regardless of how one feels about the fall in Re valuations, SF cannot stay competitive worldwide if it doesn’t adjust its COL down given that the downward adjustment is happening elsewhere as well. so I think of this as a painful but necessary outcome.

  3. The one who lost $55,000.00, and probably should be rephrased to “Seller could have done a lot worse.”
    1:59PM

  4. Prices for SFHs are down in D7 anywhere from 5 to 30% with some properties seeing 98-99 pricing.
    However, there has been a surprising amount of activity over the last couple of months. The high-end market was pretty much frozen the first few months of the year, so its nice to see an actual uptick in homes going into contract. It’s just taking much, much longer to close on a place these days.
    I’ll go out there and say I think D7 did find A bottom for spring pricing (obviously, not THE bottom). Still, the stuff unsold going into “summer” will have to have major price corrections as buyers leave the city and the stock market flounders.
    I’m kind of expecting a fall rally in stocks, so my guess is D7 prices will remain somewhat stable for new inventory that hits later this year.

  5. Bear with me here…so I ran another quick & dirty return model to see what a hypothetical owner of this place would have gotten over a long-term hold of 9 years (assuming the ’04 sale never happened).
    Assumptions: 20% down at an average rate of 7% over the loan life. Annual maintenance of $500 per year, increasing at 2% annually, plus the $200K remodel in ’02. Property taxes at 1%, growing at 2% per year, and P&I reduced by 25% for interest deductability.
    Cash-on-cash, this was obviously a huge loss over 9 years. But even adding back imputed rent, an owner here likely would have lost money over 9 years. Breakeven seems to be around imputed rent of $5,500/month in 2000 (growing at 2% per year), which is probably way too high. What would a place like this actually have rented for in ’00? Maybe $4,000/month max?
    More interestingly, even if you assume the $200K remodel hadn’t happened, the overall return still comes out around zero to slightly negative.
    Again, I welcome anyone to double-check my math. But this looks like a piece of “primo Cali” that generated a loss for two consecutive owners over nearly a decade of ownership.

  6. D7 was in a major state of panic for a few months there. The stabilization of the stock market and financials in general brought life, and a surprising amount of activity back into the market. I’m actually pretty surprised at some of the homes that are In Escrow right now. Very curious to see if a few of them actually close.
    I’m not sure D7 found a bottom per se, but the “buyers” certainly demonstrated just how fragile and sensitive things are at the top. To me, it really highlighted the extent of the greater fool theory and in those early parts of 2009 — nobody wanted to be the fool.

  7. Legacy — wasn’t there some other kind of bubble that was mostly centered in SF that was going crazy in around 1999/2000? I seem to remember reading about it somewhere.
    Maybe that impacted prices of real estate, hence the decades of subsequent losses handed to buyers of overpriced real estate?

  8. Legacy Dude, no doubt the rate of return statistics look awful for this seller. But all things being equal, he/she probably had a “push” versus the stock market when net expenses are considered over the same time period, which in this environment, I’d consider a win.

  9. I also think the latest seller did ok, but he must have lost more than $55K. After commissions and other “frictional” costs, it’s hard to see how anything less than $125K went to money heaven.
    Ditto for the 2000 buyer, assuming that the $200K remodeling estimate is a good number. Adding the remodeling cost to the purchase basis, and then backing out the frictional costs on sale, nets about a $150K capital loss.
    Without getting too much too much into the cashflows, I’d say that at any point over the last 9 years, the after tax effective carry cost on the condo was greater than rental equivalent. In some environments when rents were relatively “low” (2002-2005/6; 2009), the effective ownership burden was likely substantially higher than rental equivalent cost.
    Anyway, this bubble asset did what it was supposed to do – it ensured fairly substantial losses (especially when aggregating the excess of carrying cost over rent to the capital loss and frictional expense) to two distinct owners, while simultaneously providing a windfall to whomever was smart enough to sell it in 2000. Along the way, though, 228 Mallorca also provided a direct transfer of wealth from the owners to economically undesirable activities, namely, REIC-sters and banksters. And we shouldn’t forget the gooberment misallocators of capital, who very much enjoyed the additional tax revenue that was siphoned off from the owners’ productive labor on the basis of the higher than equiliibrium bubble valuation.
    As for alternative uses of the money that was siphoned off from these owners by the bubble, sure, US stocks from 2000 would likely have been a push (but not from 2004). However, most asset classes did pretty well over the 2000s, especially foreign denominated stocks, debt generally (particularly sovereign debt), commodities, and gold (especially, with almost no downside volatility over the period).

  10. LMRiM, more power to you if you somehow called sovereign debt, commodities and especially gold in that period. I think its a stretch to assume that it represented any sort of realistic opportunity cost. (ie, you may also call correctly picking last nights lottery number an opportunity cost, but I wouldn’t) The investment “default” choice is usually US stocks, and that’s a reasonable compare in my books. US stocks were down in the neighborhood of 20% since this place was purchased, therefore I think its not a stretch to say this guy/gal had a push. (of course losing money is always a bad thing – especially real estate over 5 years)

  11. @sfguy: but what about that leverage the real estate “pros” and salesmen always emphasize?
    If the 2000 buyer put 20% down ($220K) and sunk $200K cash into the remodel it’s $420K invested. A $150K capital loss on a $420K investment = a 36% loss on this investment versus a 20% ($84K) loss if the same $420K had been invested in the market. That’s not even close to a push.
    Imputed rent would be more than offset by the interest on the 80% borrowed and taxes.

  12. legacy dude,
    $500 maintenance/year? That seems really low. And property taxes are more than 1%…
    Everyone always underestimate the cost of maintaining a place as well as all the pesky little things that are bound to happen to landlords and not to renters. regular upkeep of the surfaces, plumbing, wiring, etc… Or unscheduled things like having to dig a trench because some stupid roots got into the pipes, or a neighbor complaining about this and that and making you fix your bumpy sidewalk for instance (bloody trees). And what about burying the lines or doing the cable hookup? Landlord stuff. There are dozens of these and they add up to $1000s.

  13. A condo that’s down in price a few percent from its last sale is the best we can do in the worst real estate downturn in our lifetimes?
    This is falling down? The power in this market is astounding. A condo on landfill without a view closes at $1.17m.

  14. LMRiM, more power to you if you somehow called sovereign debt, commodities and especially gold in that period.
    SFguy:
    I would be shocked if LMRiM wasn’t invested in those things. I know that he is part of the financial blogosphere like I am, and we have all been in things such as gold, oil, international stocks, and commodities for many years. Not to mention being SHORT things such as financial firms and RE in 2007-2009. By the way, I was also in American stocks from 2003 until Late 2007 and completely out in Jan 2008 (I have a post on socketsite where I discussed selling my last stocks in Jan 2008).
    I think its a stretch to assume that it represented any sort of realistic opportunity cost. (ie, you may also call correctly picking last nights lottery number an opportunity cost, but I wouldn’t)
    I agree with you completley here though. Even though some people can correctly play the markets, I agree that it would not be wise to use those returns as a realistic opportunity cost.
    The investment “default” choice is usually US stocks, and that’s a reasonable compare in my books.
    this is true (I agree with you), I definitely agree that using the S&P would be a good enough opportunity cost estimator.
    That said, I actually rarely use US stocks for the average person when deciding opportunity cost for them, since so many average investors are so horrible at stock investing (unless they are indexing). instead I use comparable Treasury rates or TIPS myself. (you can google some of my way old posts where I have said as much). the reason: Treasuries indicate what a risk free rate of return would be over long periods of time.
    I also like Treasuries because they are RISK FREE, which has an advantage. It helps to negate the “you can’t live in your stocks” argument. Sure, you can’t live in Treasuries, but Treasuries are risk free. (or at least have been… let’s see if our govt goes so crazy as to crash the Treasury market. they are clearly crazier than I imagined. $12-13 Trillion and counting).

  15. sfguy,
    In addition to partially echoing what Michael and ex SF-er wrote, I think we might be talking past each other regarding the idea of what is or isn’t a “push”.
    Let’s flesh out the numbers for the 2004 purchaser (who is the 2009 seller). Prop shark shows a downpayment of $245K. The capital loss (assuming normal “frictional” costs) was approximately $125K, or -51%. Now, while it’s true that the S&P500 (best proxy for US stocks that is commonly used by investors) is down approximately 18% from May 2004 through present, I think you are ignoring dividends. Although small in the historical context, dividends over the 5 year hold neverthless will add back about 9-10% to the absolute return, yielding about a 8-9% loss. Much less bad than -51% I’m sure you’ll agree! (There are some tax effects going on, which I am ignoring, which would lower the effective dividend return, but there is also a tax benefit to the capital loss from the stock portfolio, which would serve to reduce the 18% stock loss – losses from real estate are of course nondeductible personal loss for most owners.)
    (As I wrote, when you get back to the 2000, you are looking at more of a 30-40% loss in index level, but you add back more like 15-18% cumulative dividends.)
    But, strictly from an investment perspective, the 2004 purchase of 228 Mallorca is even worse than those numbers indicate. I assumed that for every month of “ownership”, the fully costed after tax burden was higher than rental equivalent. We could argue how much, and acknowledge that in some environments it would have been “less bad” because corresponding rents were elevated, but this should be an uncontroversial statement. For every dollar of that excess it is a 100% loss. That excess money was simply “thrown away” on “non rent”, sacrificed to the idea of building equity that was sold by the banksters. It certainly built their equity!
    About US stocks being the default choice, I’m a little surprised about that. My background is wholly institutional, and I never dealt with retail clients professionally (never dealt with clients period – I was basically a proprietary trader with some institutional customer money that I traded in parallel). I guess I don’t get out enough and see what people are really doing! Most people I know and talk about finance with (generally “high net worth types”, so there is some selection bias) have some significant diversification. Muni bonds and sovereign debt (treasuries usually) seem to be part of everyone’s portfolio, and also usually at least foreign stocks and some bond comonent (even if only Ginnie Maes). A reasonably diversified portfolio would have performed much better than US stocks, which were one of the worst financial asset classes over the period, and with a little luck would have generated positive cumulative returns from 2000. It would have been even easier to generate positive returns from 2004. You really didn’t need to be a financial genius – just some balance between dollar exposure and foreign exposure, and some balance between debt and equity and cash would have done the trick I’d imagine!

  16. LMRiM, great analysis. I think you come up with some great points. I’d only add that principal repayment factors in here, and becomes significant at 5 years. Very true on the rental “throw away” point as well.

  17. LMRiM wrote:
    > But, strictly from an investment perspective, the 2004
    > purchase of 228 Mallorca is even worse than those numbers
    > indicate. I assumed that for every month of “ownership”, the
    > fully costed after tax burden was higher than rental equivalent.
    In 2003 I sold my home in Burlingame and started looking for a place to rent in SF, for $3K a month you could rent a nice 2 br with parking anywhere in the north of town and once you started getting close to $4K you were looking at super nice rentals (often with a third br).
    I ended up renting my current place for $3,200 a month and I’m currently paying $3,245 since my landlord never gave me another rent increase after my second year since I’ve been helping him out by looking at problems in other units and giving him advice on what to do).
    If I “bought” 228 Mallorca (with 20% down at 6%) my P&I payment would be $5,875/month + HOA dues of ~$300 a month (the listing is down so I can’t see the exact number) + repairs & maint. of ~$40 a month (this is a decent number) and ~$600 a month lost interest on my 20% down payment (using an average low risk return of 3% over thr hold period).
    It turns out that the Realtors ® that told me I needed to buy a place since I would be just “throwing money away on rent” were wrong and it was the people that bought that were “throwing the money away” (at a rate of ~$3,600 per month or ~$260K over the past six years)…
    P.S. He probably “threw away” more than $260K (in addition to the capital loss & cost of sale) since I assumed that his Income Tax savings covered 100% of his property taxes and that none of the savings each month were invested anywhere…

  18. FAB, it’s the other way around, deduct 50% of the interest and add 1200 for property tax without deduction (in spite of the fact that you can deduct property tax, the total usually works out to about this due to limits on deductibility), total is about $5100. Places like this in the Marina in 2004 would have run about $4,000 in rent. They threw away about $1100 per month in non rent for 5 years, about $60K in all, then their loan probably blew up and they couldn’t refinance so they bailed.
    The other issue with LMRiM’s analysis that people here forget is that, those of you who are real estate bulls probably lost more money than the bears in the market. I saw storm clouds on the horizon and liquidated almost everything on December 31, 2007. I was 99.5% cash going into 2008. I didn’t lose much in the market at all.
    The people I knew who lost the most in the market owned a lot of real estate. They believed in it always appreciating, except for minor blips, so not only did they lose a lot of real estate wealth, they also lost the most in the market because they didn’t foresee the depths of the problem, though I know a lot of people not real estate bulls who lost a lot too.

  19. I saw storm clouds on the horizon and liquidated almost everything on December 31, 2007. I was 99.5% cash going into 2008. I didn’t lose much in the market at all.
    I’m curious who you think would believe such claims of foresight — from you — at this point. You don’t care to ever be correct or accurate in this forum if it does not serve your anti-r.e. campaign. You’ll just say it anyway.

  20. While the financial analysis is impressive as it is with all posts, I think we need to give credit where credit is due… This could not have been done without a licenced Realtor with a special NAR designation to sell properties located within 200 feet of a upscale wine bar.
    That NAR “get off the fence” ad campaign is working.

  21. I absolutely believe Tipster and ex-SFer on their market timing. Anyone not deluded by the “_____ asset class always goes up” psychology could see this coming a mile away. I remember the day that I got into cash – Google was over $700/share, DJIA above 14200, and the word “subprime” was just entering the cultural ether. I truly feel bad for baby boomers about to retire who needed their stocks to do well (and thus couldn’t pull the “sell” trigger), but anyone else steamrolled by this thing probably shouldn’t have been drinking the discount broker Kool-Aid.

  22. I have never understood why realtors feel price declines for their product (used homes and condos) is bad. I look at price declines as a positive developement and would think they would welcome increased affordability. If Tipster forecast a price decline, how is that “anti real estate”?

  23. Fine. Ex-SFer offers a consistent viewpoint and strives to be accurate. Tipster offers a consistent viewpoint and just says wildly hyperbolic and inaccurate stuff if the mood strikes him. My mileage obviously varies with yours as to how that has shaded believability.

  24. I have never understood why realtors feel price declines for their product (used homes and condos) is bad. I look at price declines as a positive developement and would think they would welcome increased affordability. If Tipster forecast a price decline, how is that “anti real estate”?
    Your screenname is an apt one. I think you’re talking about six different things here without acknowledging a very large body of “work” from Tipster.

  25. I truly feel bad for baby boomers about to retire who needed their stocks to do well (and thus couldn’t pull the “sell” trigger)
    And let’s not forget all the cash-basis libertarian tax filers with large accumulated equity gains going into 2007 and saw what was likely to happen. They faced the miserable choice between inefficiently hedging their portfolios (and accepting huge tracking and forecast risks) or cashing out and paying the confiscatory California gains rate. An excruciatingly painful choice when you believe denying funds to an out of control government is one of the most socially beneficial things you can do 😉

  26. I saw storm clouds on the horizon and liquidated almost everything on December 31, 2007. I was 99.5% cash going into 2008. I didn’t lose much in the market at all.
    Did the same thing around a year before that with both RE and Stock market. It is not uncommon, I know others who have done the same. But I know many more that have bought into the bubble all the way. Especially 2 former co-workers who were trying to duplicate what I had done in RE, just 5 years too late. One came out OK and sold his NY place last year. Another one is stuck with an upside down house in Oregon. A bunch of my co-workers and friends have bought in 2007-2008 in the BA. Ouch!
    I do not know if this can qualify as insight or chance. I have been wrong many times especially when stopping to accumulate RE in late 2002, thinking prices were out of whack with economic reality. I could have gone on buying into 2004 maybe as long as I could afford it. That probably would have produced more leveraged profits.
    Also, a “it-felt-wise-at-the-time” decision was using 50% cash every time to get relevant amortization and to have payments and costs covered by the rents. I could have been fully leveraged following LMRiM’s mantra that you should risk other people’s money if they are willing to give it to you. I would be X times richer today. But hindsight is 20/20 as they say.

  27. Wow, serious SS analysis on this one. You’d think it was the sale of a downtown skyscraper.
    I counter that it’s not that bad price for selling in such a poor market, especially for a lower unit with quite a bit of listings in that neighborhood now. I live two blocks away.
    And enough with all the people stating that they liquidated at the stroke of midnight on 12/31/07, went all in to BAC stock at $3/share at its March lows, saw the bubble coming, knew to corner the orange juice market, etc, etc, etc.

  28. Just to defend my honor:
    I invite you all to look at the charts for Gold, oil, American and Foreign Stocks, and treasuries on the days when I’m making the following posts. You’ll see I did VERY well in 2007 and 2008.
    Read this post by me and the entire thread (you can google it, it’s too long to post). It’s where I talk about going into commodities and oil as well as Gold and Foreign/American stocks, in September of 2007.
    Posted by: ex SF-er at September 18, 2007 4:48 PM
    ===
    confirmation of my strategy in November 2007:
    I learned my lesson after the 50 bps disaster. gold and oil like everyone else. they are now nearing bubble territory too… but I’ll be darned if I’m going to just watch all my savings become worthless!
    (snipped and reformatted)
    Posted by: ex SF-er at November 1, 2007 10:40 AM
    ======
    Then here is where I discuss cashing out ALL of my longs (in equities) in Jan 2008. (I was mostly out in nov 2007, and COMPLETELY out in Jan 2008.
    Ben fooled me once (way back last summer… when he first betrayed us with the 50bps cut). but I learned… This guy will drop as fast as he can as low as he can. And take our life savings with him if we let him.
    I will only play a little… Gold like everybody else (for me since 2005). I cashed out all my longs today.
    (again, snipped)
    Posted by: ex SF-er at January 30, 2008 5:16 PM

  29. we apparently have 4 or 5 of the smartest investors on the planet posting on socketsite. the fact that the us stock market collapsed well after you folks liquidated means the vast majority were liquidating all the way down. you need sellers for price declines.
    every time they pit monkey’s against “experts” the monkey’s win.
    i don’t not believe you guys…. my point is that 99.9% of the population sticks their money into their chosen investments and goes to sleep. they wake up after the carnage to find themselves 50% poorer than they thought they were.
    at least in real estate they’ve got many months, if not years, to read the tea leaves. here you geniuses are beating the “sell now or else” drum for all to see in SF, and how many have even heard of socketsite, or bothered to read comments when they did arrive.
    for LMRiM et all to do an analysis that says the person “dumb” enough to lose so much in real estate would somehow have avoided massive stock losses is ridiculous.
    finally, a challenge you to find a rental NOW of equivalent side, location and condition to 228 Mallorca at any price. so much remodeling has happened in the past few years that i bet it was even harder in 2004. I bet back then if this person chose to rent it they could have gotten a lot more than $4,000.
    i’m open to criticism/corrections of this point because i really don’t know since i wasn’t looking at rentals back then… and I’m not saying this wasn’t a fairly substantial capital loss, just that most people would have lost far more than you brilliant pseudo economists believe. And it’s also a 5% drop, not the 40% you all seem to be predicting

  30. hangemhi, you’re comparing 2 different things. The uberbears here are calling for 40-50% decrease from peak to trough. You are saying this property had a decrease of 5%? But that’s compared to 2004!!! Not 2008 or 2007 or 2006 or 2005! That’s 4 years of appreciation that have gone to heaven in one single year. How crazy is that?
    The market went up at least 20% if not 25% from 04 to early 08 (the peak in SF). Of course we do not know how much a guy buying at the very top would have paid in the spring of 2008. Maybe the same price, or maybe he’d have overbid 10% extra like what I saw in 2007 with a friend of mine. But if you take a basis of 100 in 2004 and 125 in 2008, this property sits now at 95, which is a 31.5% decrease. All hypothetical, of course. Just to show that I can also twist numbers any way I like if it serves my purpose.
    Stating that prices went down only 5% and picking a 2004-2009 apple? What’s coming next? A 2000-2009 apple with 0% decrease? Bring it on! The market is riding a time machine right now. 2003 prices are around the corner and coming fast.

  31. fair enough… i wrote the post quickly as my typos will attest. but to twist your twisting, then you’re saying we’ve only got a few more percentage points to drop since we’re already down 30+%?

  32. Dunno how far it will go. Whatever viewpoint I take everything still seems overpriced by 20-30% or more.
    That seems a lot, but rent-vs-own ratios are still favoring renters. And rents are coming down.
    Then again, that estimate could prove to be very conservative. We have a perfect local storm: primo credit crunch + CA budget crisis (no Fed soup for us!) + ~9% and rising unemployment. I wouldn’t be surprised if this market were to overshoot on the way down.

  33. hangemhi:
    I agree with you, most investors are passive investors and thus would have lost in both stocks and RE. In fact, I’ve harped on this MANY times. Including, incidentally, in my post above where I discuss my rationale for using Treasuries and TIPS to calculate opportunity cost, and not equity indexes.
    It’s also a reason why I’ve tried NOT to post my trades much on SS, because it’s not for people who are not financially educated.
    It’s also why I’ve warned people away from the stock roulette wheel.
    Just because I speak against crystal meth (RE) doesn’t mean I think you should take crack (stock market)
    at least in real estate they’ve got many months, if not years, to read the tea leaves
    the only problem with this statement is the near universal use of leverage and the high transaction costs of RE leading to the severe illiquidity. Many people have figured out that they “should” sell or “should have” sold their RE. But they can’t because they can’t afford the transaction costs or are upside down on their position. This is not the case with most other investments held by regular people. (most regular folk don’t hold stock on margin as example).
    so although I agree that RE is a great part of a diversified portfolio, I also acknowledge that it has huge limitations including it’s overall price (which causes it to become too high of a percentage of many people’s investment portfolio) and it’s illiquidity.
    here you geniuses are beating the “sell now or else” drum for all to see in SF, and how many have even heard of socketsite, or bothered to read comments when they did arrive.
    it’s even worse than that. the so-called experts who people DID listen to were really connected interests who were either supremely biased (like the NAR and NAHB) or had other agendas (Greenspan of the Fed) or just plain idiots (Mainstream media running hordes of “there is no bubble” stories).
    And it’s also a 5% drop, not the 40% you all seem to be predicting
    the house depreciation may have been 5%, but the owner’s loss on invested funds was far higher than that due to leverage.
    I have NOT done the math on this… but the various owners lost more than the 5% due to leverage… they both got back much less than their downpayments.
    I neither agree nor disagree with the 40% number but it is clearly a ROI far worse than (negative) 5%

  34. oops, sorry…
    I see you meant 40% RE depreciation!
    I’ve never predicted that, at least not in so many words.
    I’ve predicted late 90’s or 2000 pricing, and probably inflation adjusted at that. not sure if that would be 40% or not, never bothered to calculate it.

  35. Calculations that include the owner’s principal payments as part of the equivalent to rent cost, but then don’t include the equity paid down when the place is sold are bogus.
    You need to do an apples to apples comparison to determine total loss. This will probably not change the direction of the loss (to a gain) but it will change the magnitude.
    —-
    A good buy and hold diversified portfolio through the carnage and recovery would not have done that poorly. For my liquid assets, I am about equal in cash, bonds, foreign stocks and US stocks. Usually I don’t have this much cash, but since my wife was taking time off to have a baby we bumped up our usual 6 mos reserve to a 1 yr reserve, which turned out to be lucky. And at the beginning of the year, I rebalanced my portfolio, which meant selling some bonds and buying some stocks, which is something I always do yearly.
    But I just took a look at it for this post and we are down in total, including interest and dividend income, about 6% from the peak. This does not include new money invested.

  36. I rebalanced my portfolio
    I love when this is casually thrown out there. I think you’ll find that when you get to the point when you’ve got some substantial assets, this is not a trivial exercise. Try “rebalancing” a large taxable portolio in the face of large prospective moves as a California resident sometime, and get back to me with any tips (serious request)!
    (Hmmmm, maybe that explains why I seem to see so many cars around in the hills of Tiburon with Nevada plates….)
    BTW, this “adjustment” was just about the most obvious and well telegraphed major market move I think I’ve ever seen. Well, at least as obvious as getting out of US stocks in Fall ’99…

  37. About half of my capital is in tax benefited accounts (IRA or 401ks) so it is pretty easy to rebalance without paying taxes. Even after a big change like this year, it is no more than a few percent of invested assets that has to be rebalanced anyway.
    You are a sophisticated enough investor I am sure you can build a synthetic portfolio with options and the like, but this is complicated and fraught with peril. Just bite the bullet and pay your taxes, dude. Don’t let the tax tail wag the portfolio dog. You (or your heirs) are going to have to pay them eventually. You don’t really believe that tax rates are going to go *down* from here?
    Short of pulling a Mark Rich or something, you are going to end up having to pay.

  38. Re rebalancing – I’ve watched acquaintances fall in two camps: those who don’t pay attention to what’s going on in California, or with their taxes, and those who don’t “live” there. (The latter either don’t mind the Nevada, or don’t mind rain.) It sucked if you lived here and wanted to blow out a bunch of positions in 2007. Why pay 15% on gains when you can pay 25% in California – doh!
    Over the past year a lot of folks have acquired a taste for a business or two that might help with future taxes.

  39. NoeValleyJim: nice work. I see we have another George Soros in our midst.
    This isn’t really rocket science. Imagine you invested $100 two years ago in the following funds each: LQD, DIA, EEM and a CD paying 3%.
    Today, the CD would be worth $106, the LDQ, plus bond payments, $107, the DIA, plus dividends $67 (ouch) and the EEM, plus dividends $77.
    That totals $357 and you would be down less than 11% overall. I did a little better than this, but not by much and in fact I have a chunk of all those ETFs in my portfolio.
    Now granted, there was a moment there in September when it all wasn’t working but I resisted the urge to panic and did almost as well overall as the guys who timed the market successfully. Plus, I had a lot more fun 🙂
    And they still have to figure out when and if to get back in.
    Sorry if I misunderstood your snark and you actually meant to make fun of me for being down 6%. I think I am doing all right, considering.

  40. “And enough with all the people stating that they liquidated at the stroke of midnight on 12/31/07, went all in to BAC stock at $3/share at its March lows, saw the bubble coming, knew to corner the orange juice market, etc, etc, etc.”
    Sorry, I’m not that sophisticated to do all those things, but it wasn’t that hard to see that it was time to sell at the end of 07. I had lots of little accounts (

  41. Okay, if you are just talking about your state taxes, it is easy enough to move.
    Not that I condone this, but I know more than one dot.com millionaire who “moved” to the Nevada side of Lake Tahoe to avoid CA taxes. One guy even has his home up there, but spends most of his time living in a decked out RV parked in Dogpatch. And this guy has some serious money, definitely a multi-millionaire. This probably wouldn’t work for you, since you have kids.
    The crazy shit some people will do to dodge what is really a proportionally small tax burden is beyond me.

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