Our goal is to tell you how to make a million bucks in less than 20 years with money just about anyone can save over a decade [$20,000–50,000 ] if they try. But sometimes we can just write a short blurb about how to NOT LOSE a decent chunk of your savings just making what might seem like routine life decisions with your capital. Here we don’t refer to buying oil (or is it selling if the seller pays you money to take his goods? Ok, even we’re confused now) at today’s all-time historical record of NEGATIVE $40.32 per barrel of West Texas Intermediate Crude oil ; we refer to the ordinary task of buying a house in 2020. Don’t do it.
It so happens, if you or a friend are in the market to buy a house and will have to lay down 10–20% of the house price as collateral (go with it, we’re old, when we grew up a family had to lay down 20%) to buy a Toll Brothers home, it’s just better to take that cash and buy $TOL stock. Do we think TOL is a great stock purchase? Not really. It could be, but mainly this article is about how to lose LESS money and how to gain MORE money than you would by buying a house, by buying something incredibly similar — Toll Brothers’ balance sheet. Toll Brothers’ balance sheet is loaded up with land and semi-finished homes and finished homes going currently unsold this Spring bc no one is allowed out of their Nazi Germany houses without meeting the storm trooper’s guidelines for proper attire (and soon mandatory needles inserted in to your body like you were cattle meeting FDA approval).
Let’s do some math on why you would rather speculate on “Mr. Market” being wrong about TOL stock trading at $20, instead of buying one of Toll’s homes.
Let’s say your dream home price is $666,666.
Toll Brothers typically makes about 20% gross margins selling you this home.
Easy to calculate how much Toll is paying for the house, it’s 80% of $666,666 or $533,333.
But NOW let’s look at Toll Brothers the STOCK, instead of Toll Brothers’ stock (yes, we said that right):
FORGET ABOUT INCOME & CASH FLOWS, SILLY!
Mr. Stock Market is already assuming TOL has a slim chance of making money ever again. How do we know this? TOL the stock is selling for $2.6 billion according to Yahoo Finance. A quick check with their last balance sheet on SEC.gov EDGAR shows TOL’s balance sheet worth ~$3.2 billion dollars if we make some doomsday assumptions about their ability to collect recievables (otherwise it’s more like $4 billion plus). This $3.2 bn assumes inventories are marked to 100% of listed value. Thus, Mr. Market is saying Toll won’t make anymore money AND will need to take a discount price to their inventory which is marked too high in trying times. But how much too high?
2.6/3.2 = about 80%
What does this mean? It means Mr. Market thinks the price TOL pays to build your home, is 25% too expensive. Mr. S. Market thinks the price of a newly purchased home in the Summer of 2020 is valued at:
80% of 80% of $666,666 = $426,666 (dang, thought we’d get rid of those 6s after a little math).
You, the gal who was thinking of buying a nice home from Toll Brothers, can not only avoid paying full price for that home, buy you can buy a PORTFOLIO of homes for 80% of what TOL pays for them. That’s like not only owning the casino, but getting paid a salary to be the BlackJack dealer on top of the profits the casino makes. WIN WIN!
So for anyone considering buying a home, FIDDLESTICKS THAT!
For the same 10–20% you might lay down down for your $666,666 home, just buy TOL stock. Let’s review both the upside and downside of your new decision:
The downside is not just the same ($zero), it’s better! How wonderful life is, when (lawyers aren’t in your world) you don’t get involved in the legal mess of loans and banks?
The upside? In your house purchase, not much. You’d need prices to go up 56% just to equal what TOL stock will return if Mr. Market even just values TOLL’s inventory back to the potential profits they should have earned by selling them.
In TOL? Well, everyone agrees this crisis is going to completely pass by with the US economy unscathed at this point, yes? If not, why the 50–100% gains in some stocks since last month? That’s what we’re playing for, yes? Full return to normalcy?
So that means TOL’s gonna grab a new high. By my count that’s a 150% gain inside of a year or two when we all laugh and laugh what a big head fake the stock market drop was.
Recommendation: Don’t buy TOL stock, and don’t buy Toll Brothers’ stock either.
While you might confuse this article with a recommedation that TOL stock is cheap and with favorable risk/reward and that’s partially true on the risk/reward part — it’s only RELATIVE. We are simply pointing out that buying a house is a worser investment than buying a housing stock. We think this odd discrepancy in this article says much more about what’s to come in Real Estate. Namely, the STOCK MARKET thinks RE prices should be 36% lower. The stock market is pretty smart MOST of the time. Disagree with it only if you have better information.
Mr Market has a strong point and it should be considered: we should be scared of what’s to come in Real Estate, particularly after what we’ve seen in commodity-goods prices. We don’t believe COVID is responsible for all these problems, we think the virus is just the straw breaking the shale-oily camel’s back. Leadership, the media, and people in general are overreacting because there’s a funk eminating from under the skin of our perfect fake Instagrammable facade of an economy and this has been true since 2018 when the stock market peaked in September of that year.
Don’t buy TOL, Don’t buy a house.
You might think after telling you to not think about Energy stocks or Oil and related Energy commodities when oil was at historic inflation-adjusted lows at $45 and again warning you against it at $20, that with the current oil price a NEGATIVE NUMBER it might be time to put the ole’ BUY THE MF’g DIP toe in the water now? How much lower than NEGATIVE $40.32 can oil get Mack?
We continue to recommend you stay away from Oil and Energy.
Unless you own an mobile oil tank with a massive flame-thrower on top so you can take delivery of oil in West Texas and then light up Wyatt’s Torch after you take your 1,000 barrels of oil from the chump who paid you a few Hamiltons to take it away, oil and energy are in a state of such disrepair you simply cannot afford to speculate on the screwy front months (June Oil is $21 and could also go negative same as May did today) and we don’t like the returns on buying August ($29) or later either.
Why? Because as we’ve stated in our previous articles :
PRINTING MONEY IS MASSIVELY DEFLATIONARY, before it becomes text-book hyperinflationary. This is the material your local PhD in Economics at your favorite Ivy League institution doesn’t understand. They don’t understand it, because they study these shocks from the perspective of a 100 years later when a year or two of severe deflation looks like an elephant at the bottom of Mt. Everest. Oil going negative you say is weird? We think most commodities might as well be in oil’s predicament already. The cost to SHIP most standard industrialized commodities by and large negates any gross profits the commodity-producers could hope to make. Our local corn and soybearn farmer says it’s not worth it this year to plant corn and he refuses to take a farm subsidy. Go figure, maybe Uncle Warren & Charlie or our Universities can take the same hint?
Feb 19: Universities have BILLIONS to battle CORONAVIRUS! https://www.smh.com.au/politics/federal/universities-have-12-billion-war-chest-to-confront-coronavirus-crisis-20200219-p542c0.html
April 20: Universities take MILLIONS in bailouts to battle CORONAVIRUS! https://campusreform.org/?id=14742
Reminds us of the game Monopoly when one player has all the money while everyone else is mortgaged and near bankruptcy, then he passes Go, collects $200, lands on Chance and advances token to Go again for another $200.
And that’s how Amerikan “capitalism” works nowadays.
We continue to recommend you hold Bitcoin Satoshi Vision and $SNAP as your plays on the long term future in amounts of 10 to 20% of capital each.
First draft written 19:00 EST April 20, 2020 by John Pitts
 We were spot-on with our first article telling you to avoid buying oil and Energy-related things when oil first made what we thought was a rather drastic historical low (inflation-adjusted) to the $40s in March… https://sym.re/TJU2fCT. YET, so far we’ve been only HALF right in our follow-up tweet continuing to recommend staying away from oil at about $19–20. We wrote our atonement for that “mistake” (of not telling you to buy August oil in late March) on April 13 with https://sym.re/Marwq56 , stating that trading oil or stocks when volatility is this bad is similar to juggling horny cats: you might succeed a little if you’re REALLY good, but mostly you’re just gonna get scratched up real good.