Useful Buffett Insight

In the long cycle the less decisions you make the better if one is grounded in correct market sector. Of course holding onto a bad position is financial death, and this is where extensive knowledge is key, it takes at least 5-10yrs of serious study to really understand it, and as much practical market participation as you can handle. Although these forums can be useful to beginners, seasoned investors know its about understanding trends and superlative research.

The long cycle can last anywhere between 10-25yrs, then as market conditions change, so must asset allocation, unfortunately for most fund managers, they find it difficult to change styles, and wish to stick to the asset class that has made them wealthy, unfortunately markets do not work this way, as every market eventually goes into market decay when measured in REAL TERMS, and thats one of the big differences between the investment winners and losers, is how to measure real gains across different asset classes and different currencies, etc etc. Wealth building takes time unless you are extrodinarily gifted or lucky, but that kind of luck runs out quick, as you will be fleeced by the smart money at the first opportunity. Suckers are being lined up as we chat….

No, not true at all. I think you will find a significant proportion of successful investors will hold real property (often commercial), but will not be limited to it and are very active in all other asset classes. That is how they make money and maintain the velocity of their capital by investing in other asset classes as they move higher compared to others.

The stats show there are ~174,000 millionaires in Australia (~0.8% of the population) – a millionaire is defined by $US1m or more in tangible assets like cash, property and equities outside of the family home (eg, junk like cars, boats and jet skis are not assets). What this stat importantly tells us is that 99% of the population have recognised assets of less than $US1m excluding their home, which is not necessarily considered by some to be a lot of money to comfortably survive many years of retirement.

Match that against a recent article in The Australian which said 72% of the wealth of those over 60 is in the family home. With a median house price in Melbourne and Sydney at roughly $600K this means the average couple has only a few hundred thousand in Super, etc, at best, so don’t have much money to throw around in the main.

Someone said elsewhere they believed that grey power was splurging their huge Super funds as families were not attending house open inspections.

If that was proved true when they already have on average over 70% of their wealth invested in property and really need cash flow in order to eat and have fun, not debt, how much further at risk are they placing themselves and what does it say about the need to understand about other asset classes to ensure you don’t make a similar mistake?

I don't know about you, but I consider there is unwarranted downside risk if I act, only understand the same things, and invest like the 99%.

It does not matter if there is a loan, but has to be actual attributable equity, in other words a $US1m house with a $US500K loan = only $US500K actual equity. Logically 'x' number will be using gearing for appropriate asset classes.

I see. This makes sense then. Otherwise we could have more people out there wielding million-dollar property portfolios but paying off $800K worth of debt.

At one point there was even talk of a 'dob-in' line for people to report suspected cases. It appeared to me that the greatest concern was that foreigners were buying houses and then leaving them vacant, hence compounding 'housing affordability' issues, further reducing supply of housing to the masses.

It was terrible to even suggest something like that, turning the whole thing into a witch hunt. A few months after I first moved in, my neighbour asked if I were actually living in the house or just leaving it empty. And you can just imagine how infuriated and insulted I was to be at the receiving end of such a question, to be suspected of having enough money to buy a house simply to leave it vacant! In reality, many 'foreigners' are really people who work locally, are faced with paying off their mortgage and experience struggles identical to those of the average Aussie.

Nevertheless it is feasible that a good number of foreigners have an interest in Australian property and own rental property here. Coming from Singapore, I can at least say that I've witnessed first-hand the property prices over there and how they compare to the prices here. Not implying it's a fair comparison, however it's a case in point that might explain why Australian property is popular with foreigners.

Hi Steve

As Buffett takes big long term positions (for Berkshire anyway) he therefore does not worry about the short to mid term possibilities, 'cause he can't get out easily even if he wanted to.

The rest of us will eventually likely have to fight a fast reargard action against the Fed one way or the other inflation-wise once they are forced to stop printing and will need to be highly liquid and flexible if we want to protect our capital.

Buffett probably has as much idea and success in forecasting about what the year will bring us as the average economist

This article might be of interest: http://www.smh.com.au/business/cashing-in-on-the-boom-20110225-1b8ow.html

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'The boom's effect of driving a high cost of living in Melbourne, including galloping property prices, is nominated by [Brian] McNamee as CSL's biggest challenge as it seeks the world's best and brightest. "The biggest challenge for us is the cost of living in Melbourne – housing," McNamee says.

"I think governments have to do something about housing. Our housing market is troubling to anyone you try to bring into Melbourne."

McNamee is not shy about possible solutions. He challenges one of Australia's great sacred cows: the expectation people can buy and sell their own homes without paying any capital gains tax.

"I think we have a tax system that grossly over-encourages investment in housing," he says. "Capital-gains-tax-free on housing is poor policy because, fundamentally, it over-encourages people to invest in their home disproportionately."'

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I would like to hear your thoughts on such a strategy.

My gut feeling is to avoid 80 year old mega billionaires with elephant guns. Regardless of the season.