Location
In realestate, only three things really matter in the long run for consistently making money. They are quite simply: location, location and location. For example, a home located near a park or open space preserve, near several good paying jobs and near a major university will hold its value much more during a recession than one located an extra hours commute from the University and good paying jobs. The reason is simple. When there is a shortage of houses, all will increase in value, but when there is a shortage of jobs such as in a recession, the least desirable homes will have to discount their price more to attract buyers. While on a trip to Chicago, I spent some time investigating the realestate markets there. I found people there make the same mistake as I see in the SF Bay Area. What I see are $400,000 homes being built on $100,000 pieces of land. When times are good, like they are now, all is fine and the owners rejoice as their land goes up in value and they are lucky if their structure maintains its value. When times get bad, all they will have is the $100,000 piece of land with a "used" $400,000 house on it. Remember, in a recession, it is much cheaper to build a $100 per square foot house since labor and materials are cheaper so the replacement cost is even further deflated. To me, it seems that you want a minimum of half your money in the land and a max of half in the structure to get the most appreciation and protection in down markets.
Value
Location is to realestate as value is to stocks. One can make a great deal of money in Las Vegas or chasing after the high flying internet and networking stocks if you win the "greater fool game" and find another fool to pay more for your over priced stock . You are gambling that we will not run out of fools. This is not investing. It is quite possible these stocks can follow the Microsoft pattern and keep growing while having prospects to justify the multiple. take occasional "price increase rests" while earnings catch up, but I figure "why gamble or wait out a year of no price growth?" My strategy is to wait for the correction to come bringing these growth stocks with good prospect s into reasonable valuations or even a discount to the market and then buy. If great companies like Cisco, Lucent or even Yahoo never gets to a good valuation so I can add them to my personal portfolio, then so be it. I still own plenty of these stocks through my index and other mutual funds
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