Over the past 15 years, I have witnessed many city councils and town boards "bail out" property owners who made bad land investments. Of course, those councils would not have called overlooking the rules or subsidizing the development a "bailout" any more than the property owner would have called it a "bad investment". With scores of property owners who counted on their land investments to be their 401(k), and only slightly fewer who fashioned themselves a future developer, I thought it might be interesting to reflect on one of my own great investments.
Despite the fact that I know a ton about land development (or perhaps for that very reason), I have not invested in land. Instead, I invested in something I knew a little about, but enjoyed greatly - the web site Yahoo!
I actually really loved Yahoo! when I first came across their site back in 1995, I believe it was. The idea of a catalogue of web sites was revolutionary, and they had the best system at the time. Every time I would think of a feature that sounded cool for my computer (and I am a technology geek), Yahoo! would seem to have it. And quite a few features I had never envisioned they introduced to me. I actually watched Yahoo! Financevision, for those of you who know what that is.
So it was only natural for me, a young engineer making my way in the world, to make my first stock investment in Yahoo.com. The ticker symbol is YHOO and I made my first purchase through a company called Ameritrade at a share price of $208. I bought seven shares, so I was in for nearly $1,500, which was (and still is) serious money in my house. It was a great world and Yahoo! was an amazing company that could go nowhere but up.
Of course, that is not how it worked out. While Yahoo! was a great company, it was having a hard time converting its success to dollars. That changed when a company called Google came around and taught the world about paid search. Then I started to figure out why things like Price to Earnings ratio matters. Why a successful CEO and Board of Directors matters. Why investing in research and development matters.
Can anyone say bubble?
I saw people around me making lots of money very quickly in the tech market. Yahoo! was a company I used, liked and felt comfortable with. I wanted to get in on the action.
But the reality of the situation is that I had absolutely no idea what I was doing. Now I was not ignorant - I am a voracious reader, had researched the stock and had good reasons for picking it. Truth is, though, I was out of my element, and I paid for it. My $1500 investment is worth $102 today. I'll never get this money back out of this - no chance.
So where is the parade of sympathy for me? I work hard, have a wife that works hard, two kids, a mortgage. I'm trying to save for college, medical bills, daycare. Maybe a vacation. I didn't cheat anybody. I was just trying to make a little money.
There is no city council or town board in the country that would feel sympathy for me, at least not one that would seek to get me some of my money back. And they shouldn't - if they were to save me from my stupidity, they would induce all kinds of bad and irresponsible behavior. I made a bad investment. Shame on me.
A small town plans for its future. From that plan, the towns creates regulations. Those regulations are administered and enforced. In many ways, what goes on in a small town it is vastly more transparent than what was going on at Yahoo!, which itself was fairly transparent.
So why do we collectively treat land investments so much differently than other investments? Why are we not just willing but often eager to bend the rules for anyone with a story? What compels us to bail out landowners that have made poor investment decisions?
I'm not claiming to know the answer to this one, but in a time when the supply of land and developers in small towns vastly outstrips the demand for lots, we may want to ponder the question. There will be quite a few people who invested in their land-version of Yahoo! that we are going to have conversations with over the next few years. Those will be tough, and often tragic, discussions. To avoid compounding the problem, we should have an answer ready.