Be a lion, not a lamb, when investing in property: Michael Yardney
By
Michael Yardney
Friday, 01 June 2012
Friday, 01 June 2012
It is no secret that property markets – in fact, all economic markets – are driven by fear and greed.
During property booms greed is the dominant driver, but things have changed and now it's all about fear.
Fear of the world’s economic woes spreading to Australia. Fear of taking on more debt. Fear of investing because the property markets might collapse.
Fair enough. After all, any smart investor is going to opt for safety during a downturn. Right?
Actually, no. The opposite is true.
Most of Australia’s wealthiest property tycoons have made their fortunes by investing counter-cyclically, when everyone else saw doom and gloom and thought they were crazy to invest.
Why would anyone in their right mind follow such a principle?
Because, when you step back from the immediate, history shows us that the countercyclical approach always delivers the best results. It is, after all, the equivalent of buying at the bottom of a market cycle, isn't it?
But what is clear to me is the huge gap between two kinds of investors.
On the one hand you have the lambs; on the other, the lions.
The difference?
Lambs or sheep follow each other. They flock together. They follow trends. They are only comfortable with what is familiar. They seek safety and security in numbers.
And when it comes to property they are easily misled.
Why? Because they are easily impressed by the promise of quick gains, glossy brochures and advertising hype. They invest emotionally and this always has pitfalls.
Lions are different and, like their namesake, they are rarer beasts.
They don’t follow trends. They are independent thinkers that make decisions based on cold, hard facts, not herd-like subjectivity. They can stay calm while others panic. They are ready to look at numbers and rational arguments and make investment decisions based on these.
So what type of investor are you – a lion or a lamb?
Depending on what type of investor you are, or decide to be, the next year or two will either be a time of amazing opportunity or a period of fear and missed chances.
Let me explain.
We've seen downturns and recessions before and we've heard the various pundits telling us all how this time it's different and the world will never be the same again.
What I’ve come to realise is that when enough people start to talk about 'paradigm shifts', such as certain events have now made basic economic patterns and cycles meaningless, you can be sure we're soon headed for an upturn, or a crash. It works both ways!
These doomsayers – who claim to have seen it all coming and to know what's coming next – just create fear. And this fear feeds on itself as the headlines sometimes seem to support their arguments.
During the past property boom – when the driver was, of course, greed and banks lent money freely and often without requiring proof of serviceability – more and more people shouted about how the traditional rules and models of property no longer applied and were “old-thinking”. Yes, greed also feeds on itself.
But right now the driver is fear. And fear is blinding the lamb investors, which creates opportunities for the lions.
If the “end of the world as we know it” merchants are wrong – and they always are – then your decision to be bold when all around you are fearful, and to invest when everyone else thinks it's crazy, will prove to be the kind of insight that truly great investors apply.
Buy at or near the bottom when others say you're mad to buy.
But, of course, you don't buy just anything. Far from it. You need to buy selectively.
You will need to see beyond fads and fashions, analyse long-term potential and have the insight to see the intrinsic value of assets and act accordingly.
I believe that window of opportunity is now open. But I’m not sure for how long, because things are panning out in a fairly predictable way.
The economy is going to recover, interest rates will increase and
inflation will return.
More people will start buying or upgrading their homes and investors who have parked their money in the safety of bank deposits will start looking for a new safe haven for their funds. One that is a hedge against inflation. Many will turn to the security of residential property and then the markets will begin to lift.
And when that happens, the sheep will wake up and flock back to invest.
So, the opportunity is now!
The challenge is to be a lion investor when others behave like scared lambs.
I don't pretend it's easy. To do this, you require the long-term focus to buy well located properties with an element of scarcity, in areas that have outperformed the long-term averages.
I believe that for cashed up investors with a secure job, now is a great opportunity. Now is the time to step away from the flock of investors who tend to be emotion-driven speculators pulled along by the dominant mood of the market – fear or greed.
Simple, really – but not so easy to do!
Mark Twain wrote: “Whenever you find you are on the side of the majority, it is time to pause and reflect.”
Now, there is a man worth listening to!
Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia's leading experts in wealth creation through property. He also writes the Property Investment Update blog.
During property booms greed is the dominant driver, but things have changed and now it's all about fear.
Fear of the world’s economic woes spreading to Australia. Fear of taking on more debt. Fear of investing because the property markets might collapse.
Fair enough. After all, any smart investor is going to opt for safety during a downturn. Right?
Actually, no. The opposite is true.
Most of Australia’s wealthiest property tycoons have made their fortunes by investing counter-cyclically, when everyone else saw doom and gloom and thought they were crazy to invest.
Why would anyone in their right mind follow such a principle?
Because, when you step back from the immediate, history shows us that the countercyclical approach always delivers the best results. It is, after all, the equivalent of buying at the bottom of a market cycle, isn't it?
But what is clear to me is the huge gap between two kinds of investors.
On the one hand you have the lambs; on the other, the lions.
The difference?
Lambs or sheep follow each other. They flock together. They follow trends. They are only comfortable with what is familiar. They seek safety and security in numbers.
And when it comes to property they are easily misled.
Why? Because they are easily impressed by the promise of quick gains, glossy brochures and advertising hype. They invest emotionally and this always has pitfalls.
Lions are different and, like their namesake, they are rarer beasts.
They don’t follow trends. They are independent thinkers that make decisions based on cold, hard facts, not herd-like subjectivity. They can stay calm while others panic. They are ready to look at numbers and rational arguments and make investment decisions based on these.
So what type of investor are you – a lion or a lamb?
Depending on what type of investor you are, or decide to be, the next year or two will either be a time of amazing opportunity or a period of fear and missed chances.
Let me explain.
We've seen downturns and recessions before and we've heard the various pundits telling us all how this time it's different and the world will never be the same again.
What I’ve come to realise is that when enough people start to talk about 'paradigm shifts', such as certain events have now made basic economic patterns and cycles meaningless, you can be sure we're soon headed for an upturn, or a crash. It works both ways!
These doomsayers – who claim to have seen it all coming and to know what's coming next – just create fear. And this fear feeds on itself as the headlines sometimes seem to support their arguments.
During the past property boom – when the driver was, of course, greed and banks lent money freely and often without requiring proof of serviceability – more and more people shouted about how the traditional rules and models of property no longer applied and were “old-thinking”. Yes, greed also feeds on itself.
But right now the driver is fear. And fear is blinding the lamb investors, which creates opportunities for the lions.
If the “end of the world as we know it” merchants are wrong – and they always are – then your decision to be bold when all around you are fearful, and to invest when everyone else thinks it's crazy, will prove to be the kind of insight that truly great investors apply.
Buy at or near the bottom when others say you're mad to buy.
But, of course, you don't buy just anything. Far from it. You need to buy selectively.
You will need to see beyond fads and fashions, analyse long-term potential and have the insight to see the intrinsic value of assets and act accordingly.
I believe that window of opportunity is now open. But I’m not sure for how long, because things are panning out in a fairly predictable way.
The economy is going to recover, interest rates will increase and
inflation will return.
More people will start buying or upgrading their homes and investors who have parked their money in the safety of bank deposits will start looking for a new safe haven for their funds. One that is a hedge against inflation. Many will turn to the security of residential property and then the markets will begin to lift.
And when that happens, the sheep will wake up and flock back to invest.
So, the opportunity is now!
The challenge is to be a lion investor when others behave like scared lambs.
I don't pretend it's easy. To do this, you require the long-term focus to buy well located properties with an element of scarcity, in areas that have outperformed the long-term averages.
I believe that for cashed up investors with a secure job, now is a great opportunity. Now is the time to step away from the flock of investors who tend to be emotion-driven speculators pulled along by the dominant mood of the market – fear or greed.
Simple, really – but not so easy to do!
Mark Twain wrote: “Whenever you find you are on the side of the majority, it is time to pause and reflect.”
Now, there is a man worth listening to!
Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia's leading experts in wealth creation through property. He also writes the Property Investment Update blog.
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