Did you know there is a correlation between shark attacks and ice cream sales?
When ice cream consumption rises in the summer, so does the number of shark attacks, a study shows.
Do Ice Cream Sales cause Shark Attacks ?
At first look, it appears as if ice cream sales and shark attacks are correlated. So are we supposed to believe that Ice Cream Sales cause Shark Attacks? The answer, of course, is NO! Shark attacks are likelier to happen in summer, which is also the season when ice cream consumption goes up. The commonality is a higher temperature. This is a great example of correlation does not always show causation.
In statistics and probability theory, correlation means how closely related two sets of data are. There are many correlations to be found in an interconnected world. These correlations don’t always imply a causal relationship. Causation is the “causal relationship between conduct and result”. That is to say that causation provides a means of connecting conduct with a resulting effect.
This is a profound example for both life and business. The human mind frames life’s experiences in a narrative. Everyone has their own unique narrative. That narrative most of the time benefits us. On some occasions it twists the situation presented. Its important to see the bigger picture.
The most important books are the one you have not read
Often I am reminded that in 2005 “investors” would stand in line to buy $330,000 North Cape Coral houses that rented for $1,900 a month. Correspondingly, it was a struggle for the investing community to recognize the value in a $50,000 house that rented for $750 a month just 3 years later. At that time the real estate market was full of “half cyclers”. They has only seen a speculative cycle and had not been thru a downturn. Its not their fault. They had not read the right books. Fortunes are made buying from pessimists and then someone someday to optimists. That is done(the buying) in the downturn.
So where does all this leave us? Most of the current market participants narrative is currently driven by the experiences of the last cycle. Everyone is trying to frame that cycles intensity and duration over this cycle. We are in a boom currently. 2005 thru 2006 was a mania of historic proportions. There is large difference between a booming (growing market) and a mania. This cycle is different from the last cycle.
In closing: tune out the noise. Get some quality data and a calculator (excel works too 🙂 ). Then get to work!
Also, you can enjoy some ice cream and swim at the beach at the same time!
by Jeff Tumbarello, Director SWFLREIA, Broker Steelbridge Realty LLC.
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