Investments

[pavo335]

fellas, seems I got a few noses out of joint in another thread so I thought I'd post a link http://www.swapmeetdave.com/Bible/Invest.htm that provides simple investment principals, not meant as a definative guide but a generalisation. Having worked in the investment industry for many years I get a little frustrated by people saying buy one class of asset and waiting is the way to go. While this does not constitute financial advice as I am not a licensed investment advisor and am therefore not allowed to provide financial advice I would suggest lesson 1 is very important.

[pavo335]

just trying to be helpful but I do have a flame suite ready :-)

[adrian@vishnu]

Pav,

I read yours and other posts in the other thread. I don't disagree with you. If you buy into property and it does nothing for a while, there is opportunity lost. No arguments from me. The point I want to make is that to maximise the opportunity takes either alot of effort from an investor to monitor investment markets, or you can get someone else to manage it, and that can mostly workout, but not always. The thing with property is that in the long term, it is an investment option that is relatively safe, requires little effort, and generally yields OK. Of course the local (and international) property markets are going though a change currently that may change all of that for good, but most likely property will start increasing at a lesser rate than the last couple of decades in a few years time.

I have an investment property that I bought in 2004. I probably payed a little bit much for it at the the time. If I was lucky I could sell it for around what I payed for it now in 2012. More likely I would lose 5-10%. I have payed interest on an interest only loan for almost 8 years now. Interest rates have been OK. On the surface I have done terribly managing to pay interest for a long period whilst managing to lose 5-10% capital. In reality I have not done well, but nowhere near as bad as it looks on the surface. The rents have increased alot in that time, and it seems to be a good rental area (yields just under 6%). So the rent covers most of the interest now. I bought the property as new, so I can depreciate the building, and claim tax on that, as well as claiming tax on the loss between rent and other costs (of which major is interest). The place is probably about breaking even at the moment (negative geared due to depreciation, but about neutral in cost to me). So I could have done alot better out of many other investment strategies, but in the time period I did this (GFC), I could have done ALOT worse also. The annoying thing to me is that I could buy the same property today for around the same money or less, and make the same rent as I do now without having lost money for the last 8 years. Having said that, looking forward, the property is increasing in rent if not in capital gain. I suspect in 5 years it will be earning some good income (more than costs), and a little capital growth, so I think in the long term it will be OK.... I could certainly have done better using other investment strategies, but atleast with this, I don't feel I could lose everything if the economy crashed, and I use next to no effort to maintain the investment (property managers and I do nothing other than consider it in tax once a year), so it is a low stress investment.

So I just wanted to make the point that although I agree with you that property (particularly recently) is not the best investment strategy for short term gains, I do think that for less aggressive investors that are looking for something low stress and safe in retirement in 20 years, it still has a good place. You may make less money, but you will probably worry about it alot less.

[dh58]

There are many mindsets behind investing? That could be better illustrated on a x/y axis?

Low risk - High Risk
Low return - High Return
No work required - Work Required (By this I mean.. a stock requires no work, however if you buy a run down home and intend to improve on it then you need to work on it)

So comparing one method in one quadrant to another in another quadrant is apples and oranges. And unless people understand that, their nose is going to get out of joint as you said?

There are many methods. However for the mindset of 'low risk and roi' then yeah property is good. I agree with Adrian.

If you want to get more aggressive on ROI (200-500%) and more risk (asset may not have any tangible value) then there are other methods. Eg, buying an underperforming online asset. Facebook way back when Yahoo was trying to buy it for 1.5billion... And now its worth how many?

[pavo335]

Lots of folks just assume property is safe, which is just smply wrong. You just need to look at the Storm financial debacle as a recent reminder. All these poor folk leveraging to by property and then loosing everything.

[1q2w3e4r]

Where do you get 200-500% ROI? Over what time frame are you talking? as that's an outrageous number.

[pavo335]

Originally Posted by 1q2w3e4r

Where do you get 200-500% ROI? Over what time frame are you talking? as that's an outrageous number.

based on the price of a set of tIres i just bought from tIrerack, i'd say he is talking about a local tYre shoppe's weekly return on a set of super sports

[adrian@vishnu]

Originally Posted by pavo335

Lots of folks just assume property is safe, which is just smply wrong. You just need to look at the Storm financial debacle as a recent reminder. All these poor folk leveraging to by property and then loosing everything.

You can find bad examples of any investment strategy (off the plan purchases of unfinished properties). On the whole though, the chance of buying a property that devalued to less than 50% what you payed is very low (but history may prove me wrong over the next few years!!).... lower than just about anything else. I personally would stick to something you can see and touch.

[1q2w3e4r]

Originally Posted by adrian@vishnu

You can find bad examples of any investment strategy (off the plan purchases of unfinished properties). On the whole though, the chance of buying a property that devalued to less than 50% what you payed is very low (but history may prove me wrong over the next few years!!).... lower than just about anything else. I personally would stick to something you can see and touch.

Might want to google "Hope Island foreclosures" where exactly this has happened (along with much of SE QLD).

[pavo335]

Originally Posted by adrian@vishnu

You can find bad examples of any investment strategy (off the plan purchases of unfinished properties). On the whole though, the chance of buying a property that devalued to less than 50% what you payed is very low (but history may prove me wrong over the next few years!!).... lower than just about anything else. I personally would stick to something you can see and touch.

I agree the 'residential' property is relatively safe. the problem comes when uneducated folk are dragged in by a less than honest realestate/investment fella (I know, highly unlikely ) and say oh that sounds like a good idea 'because we all know property is safe'. nothing is 100% except death and taxes

[adrian@vishnu]

I didn't say that it does not happen!! Just that the chances are lower. There are certainly particular property areas where the risk is higher than other areas. Like other investment strategies you can choose high risk/reward or low risk/reward. My point is that in general, property is on the low risk/reward size of the investment spectrum.

[dh58]

Originally Posted by 1q2w3e4r

Where do you get 200-500% ROI? Over what time frame are you talking? as that's an outrageous number.

Maybe i'm in a niche of my own but this is pretty standard for me?

The companies i'm working for do about 10-50% minimum mom growth? So compounded that is alot? Granted it only works for about 6-9months then growth flat lines to about 2-5% but still this is what we are talking about isn't it? An investment you work on and then sell?

Time frame question depends on resources. Last year we did 200% in about 3months, we were doing phenomenally well. 80% growth one month, 120%ish the next.

However the one I've been working on now has taken about 1 year and we haven't grown even 5% as there was underlying issues to deal with first.

[dh58]

Originally Posted by adrian@vishnu

I didn't say that it does not happen!! Just that the chances are lower. There are certainly particular property areas where the risk is higher than other areas. Like other investment strategies you can choose high risk/reward or low risk/reward. My point is that in general, property is on the low risk/reward size of the investment spectrum.

At the end of the day, you can still make part of your money back. Just like with currency. Cost of materials, land etc still are worth value.

I don't think Adrian is saying that every property is a good buy. He's just saying in general, its a safer route than buying other investments.

[alik01]

Nice thread pavo335.

Definitely some great point there and some not so great ones.

As Adrian has detailed at length with his own example, not all investors want to set up portfolio and monitor it to ensure good returns - which often leads to over trading which hurts returns! The problem with shares as MrBlonde noted in the earlier thread is that it property will always have an intrinsic value attached to, even after a cyclone or flood and you can always insure it. In the market, a company that is seemingly in great shape can collapse over night - I can give several examples of this but one in particular was SOI where I lost a lot of money - lot for a uni student anyway!

Also the sporadic nature of markets actually put out some of these gent 's theories completely. There is a famous example that illustrates this. A fund was once created by randomly throwing darts at the NY Times stocks section, this fund actually out performed 95% of Wall Street fund managers! This has been repeated many times since.

Before I get flamed, I actually have a Investment Finance degree (with honours) and am qualified to give financial advise and a bit more.

[dh58]

Originally Posted by alik01

Also the sporadic nature of markets actually put out some of these gent 's theories completely. There is a famous example that illustrates this. A fund was once created by randomly throwing darts at the NY Times stocks section, this fund actually out performed 95% of Wall Street fund managers! This has been repeated many times since.

LOL.. did they ever try to repeat it?

Where is the old thread? I cannot find it

[alik01]

Originally Posted by dh58

LOL.. did they ever try to repeat it?

I did. For one of 3rd year Analysis projects. I left portfolio selection too late to do anything meaningful (a lot of inebriation back then), so I used ASX share listings to randomly select a portfolio (with some of my biases weighing in) - outperformed my Professors and most of the other kids!

[ansch]

so i was discussing with my wife about investments and she said that my car is a depreciated assets. I told her that's not true.. I appreciate it!

[alik01]

Originally Posted by dh58

LOL.. did they ever try to repeat it?

Where is the old thread? I cannot find it

The For Sale thread! They went to town on that one!

[dh58]

Originally Posted by alik01

The For Sale thread! They went to town on that one!

holy crap.. they did..

and btw lol @ leaving your assignment too late and out performing them...

[alik01]

Originally Posted by dh58

holy crap.. they did..

and btw lol @ leaving your assignment too late and out performing them...

We got graded on write up of all of it and our reflection on how we went rather than actual performance. Commenting on why you selected the shares, behavioral biases and over-trading etc...

The whole thing actually dovetailed into my honours work on empirical evidence of behavioral finance.

[BBK]

I wish I was a baby boomer or Gen X...

[dh58]

MrBlond makes interesting comments.. Its kind of like this...

Pineapples are $2 each when usually they are $10 each. So you are saving $8!!!

But in reality no, you are spending $2.

Technically you don't lose because like in the currency market, you're 100k AUD might be worth $107,000USD today but tomorrow it might only be worth $106,000USD. And until you lock in the trade then that's when you lose/win.

Originally Posted by alik01

We got graded on write up of all of it and our reflection on how we went rather than actual performance. Commenting on why you selected the shares, behavioral biases and over-trading etc...

The whole thing actually dovetailed into my honours work on empirical evidence of behavioral finance.

Its funny how things turn out like that..