Common Sense Advice For Investing In The Stock Market

Given the poor performance of the stock market in 2008, its time to go back to the investment basics and make sure you don’t forget the important stuff.

1. Only invest in companies that pay a decent dividend (at least 3%) and that have a long history of increasing their dividend.

You should consider share buybacks when measuring the dividend yield. This criteria achieves several goals. Its narrows your possible choices substantially, providing you an investment “universe” that’s more manageable.

It also automatically prevents you from buying stocks that are speculative or overpriced. If the company is cooking the books, it cannot maintain its dividend. Companies like AOL or MCI Worldcomm were reporting record profits during the Tech bubble (and so was Enron during a later period) when in fact, they were booking large losses. Since they weren’t paying out any dividends they were able to get away with the fraud for a lot longer than otherwise possible.

Investing in dividend-paying companies greatly reduces the odds that your account will ever show a loss. Earning 3% a year isn’t much, but it adds up, especially if the company continues to increase its dividend. After a year or two, even if the share price dips, you’ll probably still show a gain, thanks to the dividend.

2. Out of the companies that are paying a good dividend, only buy companies whose businesses you’re able to easily understand and that you judge to have a solid competitive advantage.

To increase your understanding, read the company’s 10K (annual report) filed with the SEC. You can get a copy online for free at the companies website or the SEC’s website. If you’re not willing to spend an hour or two reading a company’s 10K, are you really ready to invest 4%-6% of your life savings in its stock? It’s surprising that investors will readily pile money into companies that they don’t understand, and that they make no effort to understand.

Note, I’m not talking about trading here. I’m talking about investing – buying a position and keeping it for years.

3. Only buy stocks when they are very attractively priced, i.e. when there’s a substantial margin of safety in the stock.

Benjamin Graham (The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel) was a huge proponent of Margin of Safety (Margin of Safety: Risk-Averse Value Investing Strategies for the Thoughtful Investor), which means you should buy a stock when it is worth more than its market price.

This step makes it nearly impossible for you to lose money investing and will ensure you garner the benefits of compounding, because your entry price will be small relative to the company’s assets and future earnings.

It’s very hard for anyone to beat the compound returns of high-quality common stocks held for the long term. If you will follow these three simple rules – good dividends, understandable businesses with competitive advantages, and buying only at very safe prices – you can achieve world-class investment results.

Now if I could only follow this advice!

The World’s Most Successful Depression-Era Investor

I subscribe to a lot of newsletters. One of them Capital & Crises by Chris Mayer had a very interesting write up on John Maynard Keynes:

You probably know John Maynard Keynes as an economist, but may not know that he was also a great investor, maybe the most the successful of the Great Depression era. And for that reason, given all that our own markets are going through, it may be a good time to look at his investment career.

Keynes managed Cambridge’s King’s College Chest Fund. The Fund averaged 12% per year from 1927-1946, which was remarkable given that the period seemed to be all about gray skies and storm clouds – it included the Great Depression and World War II. The U.K. stock market fell 15% during this stretch. And to top it off, the Chest Fund’s returns included only capital appreciation, as the college spent the income earned in the portfolio, which was considerable. I think it must be one of the most remarkable track records in the annals of finance.

Keynes also made himself a personal fortune as an investor. When he died, he left an estate worth some $30 million in present-day dollars, which surprised his contemporaries. How he did it is the subject of this essay. A new book by Justyn Walsh, Keynes and the Market, is our chief guide on the subject.

As Walsh points out, Keynes spent his last six years as an unpaid Treasury adviser. He outlived his parents, who left him no inheritance. And Keynes was a great patron of the arts, financing many ventures out of his own pocket. To finish with such a grand sum sent London society abuzz. “Some surprise has been expressed about the large fortune left by Lord Keynes,” reflected the Financial Times. “Yet Lord Keynes was one of the few economists with the practical ability to make money.”

It wasn’t easy for Keynes, as these things seldom are for anyone. Keynes began as a run-of-mill speculator and trader, trying to anticipate trends and forecast cycles. The Great Crash of 1929 sent him back to the drawing board.

Keynes was, in fact, nearly wiped out in the Great Crash. His personal net worth fell by more than 80%. He then had a great conversion. Trading the market demanded “abnormal foresight” and “phenomenal skill” to work, he concluded. “I am clear,” the new Keynes wrote in a memorandum, “that the idea of wholesale shifts [in and out of the market at different stages of the business cycle] is for various reasons impracticable and undesirable.”

After the crash, he became an investor, rather than a speculator. His new ideas on investing began to presage those of value investing icons Ben Graham and Warren Buffett. Interestingly, the crash hurt Graham too and motivated him also to think deeply about the process of investing. The two great money minds came to nearly the same place in their thinking.

Keynes now focused less on forecasting the market. Instead, he cast his keen mind on individual securities, trying to figure out their “ultimate values,” as he called them. He summed up his new philosophy in a note to a colleague: “My purpose is to buy securities where I am satisfied as to assets and ultimate earnings power and where the market price seems cheap in relation to these.”

He also became more patient. Paraphrasing from his own analogy, Keynes described how it was easier and safer in the long run to buy a 75-cent dollar and wait, rather than buy a 75-cent dollar and sell it because it became a 50-cent dollar – and hope to buy it back as a 40-cent dollar. Keynes learned to trust more in his own research and opinions, and not let market prices put him off a good deal. When the market fell, Keynes remarked: “I do not draw from this conclusion that a responsible investing body should every week cast panic glances over its list of securities to find one more victim to fling to the bears.”

Keynes also developed a fierce contrarian streak. One of his greatest personal coups came in 1933. The Great Depression was on. Franklin Delano Roosevelt’s speeches gushed with anti-corporate rhetoric. The market sank. America’s utilities were, Keynes noticed, extremely cheap in “what is for the time being an irrationally unfashionable market.” He bought the depressed preferred stocks. In the next year, his personal net worth would nearly triple.

Keynes was an adviser to an insurance company, as well as manager of the Chest Fund. In a note, Keynes laid out his understanding of the quirky, contrarian nature of investing. It is “the one sphere of life and activity where victory, security and success is always to the minority, and never to the majority. When you find anyone agreeing with you, change your mind. When I can persuade the board of my insurance company to buy a share, that, I am learning from experience, is the right moment for selling it.”

He also learned to hold onto his stocks “through thick and thin,” he said, to let the magic of compounding do its thing. (In a tax-free fashion, too, by avoiding capital gains taxes.) “‘Be quiet'” is our best motto,” he wrote, by which he meant to ignore the short-term noise and let the longer-term forces assert themselves. It also meant limiting his activities to buying only when he found intrinsic values far above stock prices.

Keynes also came to the conclusion that you could own too many stocks. Better to own fewer stocks and more of your very best ideas than spread yourself too thin. Committees and others repeatedly criticized Keynes for making big bets on a smaller number of companies. In a typically witty reply, Keynes defended his views. In this case, his critics accused him of making too large a bet on Elder Dempster: “Sorry to have gone too large on Elder Dempster. I was suffering from my chronic delusion that one good share is safer than 10 bad ones.”

He rejected the idea, as Buffett and other great investors have, that you dilute your best bets by holding a long list of stocks. At times during Keynes’ career, half of his portfolio might be in only a handful of names, though he liked to mix up the risks he took. So though five names might make up half of his portfolio, they wouldn’t be all gold stocks, for instance. “For his faith in portfolio concentration,” Walsh writes, “Keynes was rewarded with an investment performance far superior – albeit more volatile – than that of the broader market.”

In the depth of the Depression, Keynes lost a friend, Sidney Russell Cooke, who took his own life after suffering severe losses in the market. Keynes, perhaps reflecting on this experience, wrote that investors need to take losses with “as much equanimity and patience” as possible. Investors must accept that stock prices can swing wide of underlying values for extended stretches of time.

Keynes’ investment performance improved markedly after adopting these ideas. Whereas in the 1920s, he generally trailed the market, he was a great performer after the crash. Walsh dates Keynes’ adoption of what we’d think of as a Warren Buffett sort of approach as beginning in 1931. From that time to 1945, the Chest Fund rose 10-fold in value in 15 years, versus no return for the overall market. That is a truly awesome performance in an awfully tough environment.

As investors wonder whether we face a 1930s-style market or not, I found a review of Keynes’ investing career useful and inspirational. The more I study investing, the more this same handful of ideas and principles seems to recur.

I know what book I’ll be reading over Christmas!

When Is Enough, Enough?

UCLA Alumni, Andrew Lahde, announced last week that after making an astounding 866% last year, he was closing down his hedge fund and returning all the money back to his investors. While it’s not certain how much money he’s made, it has been speculated that he’s worth around $30 million – pretty good for a guy who just ran a hedge fund for only 2 years!

Unlike other hedge fund managers, he doesn’t want billionaire status. He’s made enough money to afford him a lavish lifestyle and he’s quitting to enjoy it. He made one-sided bets against the sub-prime market and he made a killing. Why ruin his track-record now!

Here’s his farewell letter to his investors – it’s quite entertaining.

Today I write not to gloat. Given the pain that nearly everyone is experiencing, that would be entirely inappropriate. Nor am I writing to make further predictions, as most of my forecasts in previous letters have unfolded or are in the process of unfolding. Instead, I am writing to say goodbye.

Recently, on the front page of Section C of the Wall Street Journal, a hedge fund manager who was also closing up shop (a $300 million fund), was quoted as saying, “What I have learned about the hedge fund business is that I hate it.” I could not agree more with that statement. I was in this game for the money. The low hanging fruit, i.e. idiots whose parents paid for prep school, Yale, and then the Harvard MBA, was there for the taking. These people who were (often) truly not worthy of the education they received (or supposedly received) rose to the top of companies such as AIG, Bear Stearns and Lehman Brothers and all levels of our government. All of this behavior supporting the Aristocracy, only ended up making it easier for me to find people stupid enough to take the other side of my trades. God bless America.

There are far too many people for me to sincerely thank for my success. However, I do not want to sound like a Hollywood actor accepting an award. The money was reward enough. Furthermore, the endless list those deserving thanks know who they are.

I will no longer manage money for other people or institutions. I have enough of my own wealth to manage. Some people, who think they have arrived at a reasonable estimate of my net worth, might be surprised that I would call it quits with such a small war chest. That is fine; I am content with my rewards. Moreover, I will let others try to amass nine, ten or eleven figure net worths. Meanwhile, their lives suck. Appointments back to back, booked solid for the next three months, they look forward to their two week vacation in January during which they will likely be glued to their Blackberries or other such devices. What is the point? They will all be forgotten in fifty years anyway. Steve Balmer, Steven Cohen, and Larry Ellison will all be forgotten. I do not understand the legacy thing. Nearly everyone will be forgotten. Give up on leaving your mark. Throw the Blackberry away and enjoy life.

So this is it. With all due respect, I am dropping out. Please do not expect any type of reply to emails or voicemails within normal time frames or at all. Andy Springer and his company will be handling the dissolution of the fund. And don’t worry about my employees, they were always employed by Mr. Springer’s company and only one (who has been well-rewarded) will lose his job.

I have no interest in any deals in which anyone would like me to participate. I truly do not have a strong opinion about any market right now, other than to say that things will continue to get worse for some time, probably years. I am content sitting on the sidelines and waiting. After all, sitting and waiting is how we made money from the subprime debacle. I now have time to repair my health, which was destroyed by the stress I layered onto myself over the past two years, as well as my entire life — where I had to compete for spaces in universities and graduate schools, jobs and assets under management — with those who had all the advantages (rich parents) that I did not. May meritocracy be part of a new form of government, which needs to be established.

On the issue of the U.S. Government, I would like to make a modest proposal. First, I point out the obvious flaws, whereby legislation was repeatedly brought forth to Congress over the past eight years, which would have reigned in the predatory lending practices of now mostly defunct institutions. These institutions regularly filled the coffers of both parties in return for voting down all of this legislation designed to protect the common citizen. This is an outrage, yet no one seems to know or care about it. Since Thomas Jefferson and Adam Smith passed, I would argue that there has been a dearth of worthy philosophers in this country, at least ones focused on improving government. Capitalism worked for two hundred years, but times change, and systems become corrupt. George Soros, a man of staggering wealth, has stated that he would like to be remembered as a philosopher. My suggestion is that this great man start and sponsor a forum for great minds to come together to create a new system of government that truly represents the common man’s interest, while at the same time creating rewards great enough to attract the best and brightest minds to serve in government roles without having to rely on corruption to further their interests or lifestyles. This forum could be similar to the one used to create the operating system, Linux, which competes with Microsoft’s near monopoly. I believe there is an answer, but for now the system is clearly broken.

Lastly, while I still have an audience, I would like to bring attention to an alternative food and energy source. You won’t see it included in BP’s, “Feel good. We are working on sustainable solutions,” television commercials, nor is it mentioned in ADM’s similar commercials. But hemp has been used for at least 5,000 years for cloth and food, as well as just about everything that is produced from petroleum products. Hemp is not marijuana and vice versa. Hemp is the male plant and it grows like a weed, hence the slang term. The original American flag was made of hemp fiber and our Constitution was printed on paper made of hemp. It was used as recently as World War II by the U.S. Government, and then promptly made illegal after the war was won. At a time when rhetoric is flying about becoming more self-sufficient in terms of energy, why is it illegal to grow this plant in this country? Ah, the female. The evil female plant — marijuana. It gets you high, it makes you laugh, it does not produce a hangover. Unlike alcohol, it does not result in bar fights or wife beating. So, why is this innocuous plant illegal? Is it a gateway drug? No, that would be alcohol, which is so heavily advertised in this country. My only conclusion as to why it is illegal, is that Corporate America, which owns Congress, would rather sell you Paxil, Zoloft, Xanax and other additive drugs, than allow you to grow a plant in your home without some of the profits going into their coffers. This policy is ludicrous. It has surely contributed to our dependency on foreign energy sources. Our policies have other countries literally laughing at our stupidity, most notably Canada, as well as several European nations (both Eastern and Western). You would not know this by paying attention to U.S. media sources though, as they tend not to elaborate on who is laughing at the United States this week. Please people, let’s stop the rhetoric and start thinking about how we can truly become self-sufficient.

With that I say good-bye and good luck.

All the best,

Andrew Lahde

Cramer Wins Mr Obvious Award!

I guess there isn’t “always a bull market somewhere”!

Jim Cramer just advised people to get out of the stock market saying that stocks might lose 20% this year. Isn’t it a bit too late for that prediction? The Dow Jones Index is already down nearly 25% for the year. Telling people that stocks might lose 20% is like telling people with the flu that they might fall sick!

“I don’t care where stocks have been, I care where they’re going, and I don’t want people to get hurt in the market,” Cramer told Curry. “I’m worried about unemployment, I’m worried about purchases that you may need. I can’t have you at risk in the stock market.”

Where was Cramer a few months ago?

But casting aside my skepticism for a second, he actually does have a valid point. He says you should only invest what you won’t need for 5 years. However, this advice is always true, not just for the current scenario. No one really knows what the market will do over 5 years, so investing for at least 5 years helps you ride out any volatility. At least, that’s the theory. If you had invested $1,000 in the Dow Jones Index exactly 5 years ago, you’d be up a whopping $40!

I’ve actually put in a buy order for some shares this evening for tomorrow morning:

ERF – a canadian royalty stock that yields over 15%

BRK.B – a baby Berkshire share. It’s shown great resilience in this market.

EDD – an emerging market government bond fund that yields 20% and is 40% below its Net Asset Value. Even if there are 40% defaults, I should theoretically get my investment back.

CDE – a silver mining stock whose share price has been beaten down next to nothing. I would’ve bought a gold mining stock, but I’m very heavily weighted towards gold and under-weighted with regards to silver.

I had the cash lying in a retirement account and I used 33% of it to make this order. I definitely won’t be accessing this money for a few decades so I think I’ll do well on them in the long run.

Note: These are not recommendations to buy any stocks, even though my passive income is decent, my  portfolio returns for the year are pretty dismal. If you buy these stocks and lose money, I will only laugh at your foolishness!

Carnival of Dividends & Passive Income #3

Welcome to the June 18, 2008 edition of Carnival of Dividends and Passive Income. Given the large number of submissions but lack of quality or relevance to the carnival topic, the theme
for this week is “Many came, but few chosen“!


Living Off Dividends & Passive Income presents $2811 In Passive Income Last Month. Yup, it was my best month ever.

The Dividend Guy presents A Review of My Yearly Dividend Income posted at The Dividend Guy Blog, saying, “I recently did a review of my yearly dividend income. This post is the result of that.”


Living of Dividends & Passive Income presents How To Invest In Foreign Currencies.

MoneyNing presents How I Started Buying My First Stock posted at Money Ning, saying, “How I started investing!”

Larry Russell presents The Top 25 Low Cost Best US Money Market Funds posted at THE SKILLED INVESTOR Blog.

Walter W. Fouse presents Vanguard Index Mutual Funds Versus Vanguard Managed Funds posted at Best No Load Funds.

Online income

Living Off Dividends & Passive Income presents $1655.32 In Online Income Last Month.

Passive Income

Jim presents 5 Reasons Why You Should be Creating a Passive Income posted at Cash Back Ideas, saying, “Post about why it’s important to have multiple streams of income to support you.”

Living Off Dividends & Passive Income presents How Passive Is Your Passive Income?.

Everything Else

Wenchypoo presents Taxing the Rich? Hell, You Can’t Even SOAK ‘Em! posted at Wisdom From Wenchypoo’s Mental Wastebasket.

That concludes this edition. Submit your blog article to the next edition of carnival of dividends and passive income using our carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

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Should You Believe Incompetent CEOs?

After leading the company’s stock price down 60% in a year, Freddie Mac‘s CEO, Richard Syron, is doing the rounds trying to prop up the stock with feel-good stories. He tried to reassure investors that the worst is in the past and that the future will be brighter than ever.

According to Forbes,

Syron reiterated previous expectations, saying the company expects revenue growth of 15 percent to 20 percent this year, but expects to see losses from bad mortgages rise to as much as $6 billion this year.

“Weakening housing prices and housing activity have led to a punishing deterioration of credit which has hurt our results, along with those of other market participants,” Syron said.

However, the company is well-suited to ride out the housing bust because the home loans that Freddie Mac holds or guarantees are far less risky than those held by other lenders, he said.

Forgive my skepticism, but isn’t this exactly what Countrywide’s CEO Angelo Mozillo said in the beginning of last year when he was dumping stock hand over fist while claiming that CFC would be taking market share from the other lenders that were going out of business.

Anyway, I think its a good omen – I shorted Freddie Mac (FRE) and Fannie Mae (FNM) today at the open. So far I’m pretty happy with the result. FNM was down ~8% and FRE was down ~2.5%. Like I said yesterday, I wouldn’t be surprized to see these stocks in the low single digits in a year. [Note: this is not a stock recommendation – always do your own due diligence]

How To Invest In Foreign Currencies & Foreign Stocks

Previously I had mentioned several ways to invest for a recession or a major downturn in the US economy. In that post, I stated that one of the ways to hedge against the declining dollar (apart from my favorite method of buying gold) was investing in foreign currencies.

Several people emailed me asking how to buy foreign currencies.

A few were concerned that they would have to travel overseas and open a foreign bank account. Luckily, it isn’t so difficult. You have 3 choices.

1. Buy Currencyshares ETFs. You can choose between several currencies like Australian Dollar (Ticker: FXA), Swiss Franc (Ticker: FXF), Japanese Yen (Ticker: FXY), Euro (Ticker: FXE), etc. If you have a brokerage account, its as easy as buying stock. This is probably the easiest method. They also pay monthly dividends and are quite similar to buying a foreign currency CD.

2. Open on account with Everbank and invest in their foreign currencies CDs or directly open an account in a foreign currency.

3. Open on account with Interactive Brokers and directly buy foreign currency (this is probably the most hassle so you’re better off sticking with the top 2 methods).

If you’re interested in buying foreign stocks, the easiest way is to buy the ADRs (American Depository Receipts). However a lot of foreign stocks do not trade in the US as ADRs. A good way to play the foreign markets is to buy foreign ETFs. For example, if you’d like to buy blue chip dividend paying swiss companies, the Swiss Helvetia Fund (ticker: SWZ) is a great investment. (I also happen to like the Swiss Helvetia Gold Coins too!). If you think Singapore’s economy is doing well, you can buy the iShares Singapore Index ETF (ticker: EWS). Or if you like Brazil, you can buy the iShares Brazil Index (ticker: EWZ).

For a more comprehensive list of foreign ETFs check out How To Conquer The World For Fun & Profit. If you’re interested in learning more about currency trading or investing in foreign currencies, I strongly recommend Everbank’s free daily newsletter about the currency markets, the Daily Pfennig. It’s really good.

Renting Vs Buying: How To Live Beyond Your Means!

The debate over renting versus owning isn’t dead. According to the WSJ, you can buy a 2 bedroom condo in Miami with a  wrap-around  balcony and stunning, jaw-dropping views for $400,000 (and this is after the market has already correctedly significantly). Apparently they come fully loaded too!

“You’ll have at least one private pool in the building, along with saunas and fitness centers and all sorts of other conveniences. Of course, you have a 24-hour concierge and valet parking. Many have private cinemas, bars, restaurants, spas and the like. They’re like cruise liners on dry land.”

But these facilities cost money. About $1,100 every month or $13,200 a year!

Assuming you put down 20%, and finance the remaining 80% at 6% interest rate, that’s going to cost you $19,000 per year. Then you still have 2.25% property tax which is another $9,000. Add everything up and your annual costs are $41,200.

And how much can you rent it out for?

Only $2000/month (that’s only $24,000/year). And the rents are dropping too! Even if you pay cash for the condo, your annual profit is $1,800 on a $400,000 investment! Even a bank CD pays more than that!

For speculators who bought at the top of the boom, real estate is turning out to be a lousy investment. But atleast renters can live well on only $2,000 a month!

Profiting From The Rise In The Price Of Oil

As I mentioned 5 weeks ago when oil breached $115/barrel, demand for the black gold will cause the price to keep on rising. On Wednesday, I drove to USC where I had an interview at the Marshall School of Business for the full-time MBA program. While driving there, I heard that Oil had exceeded $133 per barrel. I had a great interview (where I spoke about my background, my interests, the state of the economy, what a moron George W. Bush is, and the current elections) and then proceeded to a friends’ place to spend the night.

I later heard that oil prices hit $135/barrel. That news was broadcast incessantly on all the news channels and I kind of felt that it was being overdone. Whenever everyones saying that the price of something is breaking all records, it usually pulls back. I think thats why the US Dollar had shown some strength this year. I woke up on Thursday and bought the ULTRASHORT OIL & GAS ETF (AMEX: DUG), it went up a dollar and I exited my position, happy to have made enough money to pay for my gasoline bill for this month.

After that I went to UCLA for a class visit. I attended a class on Risk Management. One of the case studies they discussed was a deal between Amoco (American Oil Company, which is now part of British Petroleum) and Apache (APA) involving the sale of an oil producing property. Amoco sold the property with a guarantee to pay Apache a certain amount of dollars if the price of oil dropped below a certain amount. On the other hand, they would participate in some of the profits if the price of oil exceeded a certain amount. This was managed through the use of Put and Call Options.

It was interesting to see how large companies managed to hedge the price of oil through options, and especially ironic since oil was all over the news that day. Its not too different from how you can hedge your own expenditures on gasoline and heating oil. If you’re bullish on the price of oil and are willing to bet on this movement, you can buy the United States Oil ETF (USO). You can also buy options on this too.

Similarly, if you’re bearish you can buy the ULTRASHORT OIL & GAS ETF (DUG). You can also invest in Oil Futures contracts, however, if you’re that brilliant I doubt you’d be reading this blog!

But making directional bets in any asset class requires a certain amount of knowledge, homework and commitment. Its much easier to invest in high-yield Canadian Income Trusts like ERF, PGH, AAV, HTE, PEY-UN.TO, etc. They pay out a pretty good dividend (over 8% for most of them) and that should theoretically go up as the price of oil & gas goes up. (I say theoretically since there is some uncertainty regarding the Canadian Governments’ taxation of these trusts, so there is a black cloud hanging over them).

So far I’ve been pretty happy with my investments. I had been buying more on dips. For those of you lucky enough to have bought AAV under $9 back in January, in addition to the monthly dividends, you’ve already seen a 40%+ appreciation in the stock price! (unfortunately I wasn’t one of the lucky ones!)

But there are many ways to profit from the economic news if you keep your eyes open. By the way, USC called me on Friday. I got admitted to their MBA program with a Fellowship (tuition remmission)! So now it’s time to decide between UCLA, USC and UCSD!

Property Prices Correcting In India Too

Property prices in India have been on a tear for quite a while now. One of the condos I bought in Ahmedabad in 2006 doubled in just over a year. While the growth has been pretty tame since then, I was nonetheless quite surprised.

But in other parts of India the market has actually begun to correct. After the housing downturn of America, UK, Spain and Australia, it’s finally India’s turn to feel some pain. According to the Economic Times of India, prices are cooling down. The real estate prices in some cities have come down as much as 25%.

Land prices in the national capital region (NCR), Mumbai suburbs, Bangalore and Hyderabad have corrected by up to 25% as property developers slow down their land purchases. Poor sales and lower availability of credit at higher cost have prompted property developers to end the mad rush to acquire land. Some of the developers have even backed out of land deals which were agreed upon as the slowdown hit the sector.

Prices have come down by up to 25% in Mumbai’s distant suburbs, including Thane and Belapur, and pockets of Hyderabad and Bangalore, according to property consultancy firm Knight Frank India.

I think the reason why Ahmedabad shot up so fast between mid-2006 and mid-2007 might have been because it was declared a mega-city and thus suddenly popped up on everyone’s radar. Despite being invested in the market, I wasn’t entirely happy to see prices shoot up so much. I guess that was because we had paid cash – if I had been fully leveraged with 10% down, I might be singing another tune!

Regardless, property prices still seem exorbitantly high in many places in India. Hopefully the 25% correction will bring some much need relief to the average middle class family.