Useful Buffett Insight

Andy

Yep, I can broadly agree with those 2 points.

In answer to your question, a market like property will either go up or down after a sideways movement and tussle by the bulls and bears.

Many people on this forum (present company excepted) seem to want to be right and don't quite get the idea that investing is just about probability, and that means sometimes you will be wrong and need a plan to deal with that eventuality if you want to keep your capital in tact as much as possible. Psychology plays a big part in investing, but having to be right will do your head in and limit your success if you think that way.

There is a significant weight of evidence that most Australian non-commercial property owners are high risk taking capital gain speculators, and that includes single dwelling only home owners. Many have capital gains they need to survive in retirement.

There is no law that forbids owners from realising capital gains and if that got some momentum all on its own, you can look for all the external triggers you want, but at what point would you join the same queue instead of indignantly looking for reasons?

Fortunately, Australians will never have to worry about that risk because property in Australia only ever goes up, or inconveniently goes sideways sometimes, but then goes up again without fail.

Of course, if the complete impossible happened and property fell, Australian property owning group-think, high risk profile and missing contingency planning will likely not make the limited exit options orderly.

Be it an economic or self implosion rationale for property prices moving up or down, the discussion posted here as prompted by Steve's article is worth having, but like shares, its real value is realised if you can use the info as a leading indicator to take prior actiion.

Cheers

Hi all,

I went to an open today (outer suburb Melb)

There were two main groups. Asian buyers (with what looked like buyers agent or intermediary) and retirees. The house was a larger style house on a big block. There were in excess of 20 groups inspecting. These two types made up the majority of people inspecting. 9 days on the market $530-$580 in an area where prices are generally around the $500 mark at best, with 1000 hits on the website.

SO what, you say, who cares.

Well it shows to me that if the traditional buyer group of families or singles are not buying, there are other buyers. The majority at this open were older people. The grey army has arrived, and they have lot's and lot's of super to throw at property. They were not buying for themselves as many of the were having trouble even using the stairs. (not to be rude, just true)

You tell me why prices in some parts of Melbourne haven't even remotely began to stagnate. I'm watching several suburbs in several areas and price brackets and I am not seeing even a hint of a drop. There isn't really even a slow sell as many properties are still selling in a 6 week period.

I'm intrigued. I want to know where the money is, and where it is coming from.

D

More to the point. Looking at the stock market (which isn't going anywhere in a hurry) and the property market (which people are saying is overpriced and set to crash), where the hell is all the smart money going?

What should we invest in? Pig's ears?

Smart money is and has been flowing into assets that will do well during inflation.

You can get 6.4% in plain old U-Bank at call account, over 7% if you go for a longer term term deposit and if you understand hybrids (bonds, etc) you can easily average +8% on low to medium risk with additional capital gains upside and more again for those higher risk entities like Healthscope at 11.25%. Some equities like commodities will still keep going up whilst uncle Ben Bernanke is printing money, and good money will still be made out of selected shares over the next ~6-8 months if one maintains an itchy exit trigger finger.

Using the Rule of 70, that means you can roughly double your money every 8.75 years at 8% (70/. Of course most people don't look at diversifying into multiple asset options as you have to take the time to understand and manage them occassionally to ensure you get the required outcome. Everyone knows that property is risk-free and guaranteed to do the same thing without having to worry about too much really.

Of course if you can't find any investment that works financially for you, you don't have to do anything – sometimes you make more money that way.

Agree with precious metals. Since the world abandoned the gold standard the market has been scared off the world currency, USD on two occassions. Both times gold climbed to a price where the value of all gold in the US treasury was equal to the value of it's currency in circulation. If that happened again gold would go to $15k an ounce.

It's not just any old speculators that've been buying it either, the governments of South American, Asian and African emerging economies are seeking to hold more gold. Including India, and China which is mining its own gold.

Yes precious metals is an area that has done well, and the smart money entered 10yrs ago, holding until these metals are over valued (appropriate valuation of precious metals being on of the most misunderstood aspects of financial analysis).
My  point is that smart money would not be buying large amounts of property relative to the rest of their portfolio at record high prices, when there are other undervalued assets that are being neglected by the public and institutional investors.

A bull market that has not significantly corrected since 1955 is certainly very mature, and betting on a rise in real value in the coming years just like the last would be foolish IMO, and also indicative of a very unhealthy market, as all healthy and free markets swing from being overvalued to undervalued, unless govt develops policy that undermines the health of a market, which has occurred here in the Australian residential property market. That being said there is a brutal inflationary problem developing globally, and those that measure asset prices incorrectly without accounting for the eroding purchasing power of the dollar or crucial money supply increases are not accurately assessing the market.

Financial market precidents are being smashed almost every month to the informed investor, not having respect for the magnitude of changes will be costly to many, remember a bull market makes everyone look good.

And fword, if you can`t figure out what an undervalued market looks like, then you will likely struggle making the right choice when it comes to re balancing your portfolio. You need to work to find solutions,  in light of an accurate assessment of the issues at hand. The question i have for you is why don't you know the answer to what investments would do well in inflationary environments?

Simple enough?

Maybe I'm getting this wrong, but are we then suggesting that precious metals were a good buy 10 years ago and they too, are now overvalued?

Maybe I'm young and foolish, which is why I have no idea what an undervalued market really looks like. Certainly, younger folks did not have the luxury of experiencing market rises and falls like some of those in our company have. Hence, I'm making a genuine enquiry: where is the smart money headed? So far, there have been a few answers as I can see above, and taking these on board.

But to say that 'smart money is and has been flowing into assets that will do well during inflation' is akin to somebody saying something to the effect that, 'To make a significant fortune in the property market, you need to buy a property that will outperform the market averages'.

The statement in itself has no value, not even worth the pixels it occupies on a screen. There has to be an elaboration to substantiate the point.

To make a general statement, my personal impression is that we can only make judgments about the market with the information that we currently have. Things that appear 'overvalued' or 'undervalued' to us now may certainly not be the same within the next few years, or even the next decade. Hindsight is a wonderful thing. If people were well and truly able to read the markets into which they have invested their money, they wouldn't be wasting time giving out information on these forums. They would be well-to-do, sitting on a beach in the Bahamas enjoying life. Or they would be otherwise busy trying to reach that goal.

Ultimately then, my opinion is that people are taking calculated risks, regardless of what they do, or where they put their money. Where there is chance of a gain, there is chance of a loss. The goal is the same. Everyone wants a slice of happiness. But in the end, I'm afraid, nobody really knows what investments will do well in the coming years. Of course, if you talked about something for long enough, it is bound to happen. Eventually there has to be a boom and a crash (or correction) in virtually every asset. But as the saying goes, the only certainties in life are death and taxes.

Like i said, the aussie property market may be different, and may not experience distribution of strong to weak hands, but i would not bet on it with a large property portfolio, thats just my personal view. 
Perhaps the distribution will occur with frequent shallow sell offs of less than 10% endlessly, but this is all speculation, history is littered with examples of bulletproof investments that have turned sour as a result of some unexpected event.
Thats why i said earlier that markets are not rational, its all sentiment, and the sentiment here in oz is buy at any price one can afford. 

Right now property market is highly liquid and very well priced in oz by any valuation measure there is.
People have to make their best judgement call as to the ongoing gain of investment properties going forward.

A large amount of this dicussion is academic however, if someone has 100 investment properties with no debt, i doubt they will lose any sleep over a correction in property prices, i speak purely from the point of view of asset classes most likely to increase substantially relative to property.

This is a concept that I'm somewhat familiar with, because when I was very young with very little savings, things started off with shares and I still have some of it. There was a book that I read many years ago titled 'How to Make Money in Stocks' by William O'Neil. It was an interesting read, and I got through the bulk of it before loaning it to a friend, who promptly lost it for me. Once again I put it down to inexperience, but I found the market far easier to read in the past compared to say, the past 8-12 months leading up to today. These days the stock market is frighteningly volatile, and I guess the number of global events, disasters, etc has played a significant role in determining the downswings, which to a large extent have not been predictable.

But on that note I certainly understand that in some circumstances it is possible to read the charts and watch for the price vs volume movements and to make a judgment call from there. Shares are easy because the charts are easily available. Property is a different matter it seems, and I have yet to dip my toes into commodities, although I would certainly like to try my hand in it at some stage.

Then again, I gather it would be difficult to be successful to be a 'jack of all trades, master of none' when it comes to investing. Perhaps time could be better spent just targeting two or just three different kinds of investment.