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Motivated Money - Peter Thornhill

Discussion in 'Investor Resources & Tools' started by Simon, 21st Feb, 2007.

  1. Simon

    Simon Well-Known Member

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    I should like to unreservedly recommend this book to everyone. Consider it a modern "Richest Man in Babylon" with a modern method for lifetime wealth building. Peter is a nice fellow and will answer emails willingly.

    I am reading it for the second time since buying it last year online.

    He maintains that yield is the true wealth builder and clearly demonstrates his rationale. The share price is merely a distraction to true asset builders.

    I wish someone had given me this book 20 years ago :(

    Motivated Money for investment education
     
  2. Glebe

    Glebe Well-Known Member

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    I haven't read the book, I'd like to buy if I can find the time to read it.. but I reckon it's worth mentioning that IMHO whilst yields might be the key - the trick isn't so much current yields, but current and future yields.

    So buying things at a low PE (ie high yield) like a mining company with a mine that has a short life span, or a rental property in a town with a decreasing population, probably isn't the greatest investment.

    But if you can analyse the strength of future yields from an investment, perform some convoluted discounted cash flow analysis, then you can work out what an attractive price is.

    Sometimes it's worth buying investments at a higher PE than others at a lower PE. PE alone, or yield alone, isn't a sole determinant of value.
     
  3. Nigel Ward

    Nigel Ward Team InvestEd

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    Some very respected investors would even go so far as to say that "price is what you pay, value is what you get", i.e. that a valuation ratio with "price" in it is next to useless... :D But I'm still wrestling with those concepts :rolleyes:

    N.
     
  4. Dunsborough

    Dunsborough Active Member

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    Hi Glebe
    Cant help thinking that getting too over confident about future p/e is exactly what we saw in the tech boom and bust, maybe i am taking to extremes and way past what you getting at.
    I watched the excitement and delusions that went with tech boom, reckon i see a bit of same thing in recent years with property.
    PE discussion fits in well with property values vs rental returns, gee we just arent seeing a decent rental return on property, something has to give, property values or rent, love to see us all get 10 % rent return on our property :)
     
  5. coopranos

    coopranos Well-Known Member

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    dont know if you can (as a general rule) make property fit into a box that says the value of the property has anything at all to do with the rental return (limiting the discussion to residential property).
    I would think the value of property is almost entirely based on unquantifiables ("nice" suburb, close to the beach/city/forrest, etc), and to compare residential property with the tech boom/bust is maybe drawing too fine a line - the property market is largely driven by owner occupiers to whom the rental yield on the property has basically zero impact on what they are willing to pay for the property.
     
  6. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I agree that there is little value or accuracy in using yield to compare properties in different locations (eg beach vs inner city vs suburbs vs regional etc).

    However, I do think that yield IS useful when comparing the relative value of properties in the same area.

    This is fundamentally the method that Steve's Rental Reality uses to determine whether a property is reasonable value ... it doesn't use any arbitrary yield based value, it uses a comparative value based on long term yields for that area - which already takes into account most of the unquantifiables.
     
  7. Dunsborough

    Dunsborough Active Member

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    Excuse my late night ramblings, Suppose i Playing devil advocate a bit.
    What i really wanted to say was we have to keep some reality to p/e and not get into tech boom situation where in some circumstances people knew a share would not even have a return for many years if at all and still payhuge $$ based on a possible return.
    I also realise we have to compare apples to apples when we look at property but My properties council rates are still rated on the grv (gross rental value) a very old system where value actualy was guaged by returns recieved
     
  8. Glebe

    Glebe Well-Known Member

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    I agree Dunsbrough, looking into the crystal ball is difficult stuff. My friends bought shares in dot com stocks thinking they were going to be rich when all these companies started making lots of money. Instead the companies went broke!
     
  9. Jacque

    Jacque Team InvestEd

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    This is such a valid and important point that I just have to add my two cents worth. Coopranas is so right- Property, unlike shares, is quite often (or more than not) an EMOTIONAL purchase decision. Owner occupiers essentially lead the market, as they make up the majority of buyers and can influence values and subsequent prices in an area simply by ruling with their heart and not their head or a set of figures.
    Unquantifiables may well remain a mystery to us investors in some suburbs, yet owner occupiers have no problems paying more than what we would, because of such factors. Whether or not it's because the home in question faces the right way, or it's close to a desirable feature such as a nearby park or school, or they "feel right" in the street, it all can become very good news for the REA if the buyer falls "in love" with the property.

    Yes, yields are important, as they make up the lifeblood of our affordability with investments- cashflow :D but making the mistake of focussing purely on them as a decision making process when it comes to an emotional asset such as property could result in many lost opportunities out there in IP land.
     
  10. BuffettTheDog

    BuffettTheDog Active Member

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    I have just finished reading the book. I notice he uses the industrials index as his benchmark and he does give his rationale behind it. Nevertheless, I am not fully convinced that we should ignore other sectors such as resources, and I feel that he skips past this point too quickly. Can somebody shed light on this?

    He also tends to focus on the Australian market (although this may just be because data was easier to gather for his charts and diagrams). I believe most finance books recommend diversifying internationally. The book Stocks for the Long Run by Siegel, which Thornhill himself praises as being "great commonsense", suggests investing at least one third of one's equity portfolio in international shares. This is one area in which I thought Thornhill should have discussed more.

    Overall, I agree with Simon, and I thought the book was excellent and well worth the read. Thornhill stresses some convincing arguments that I have not read or have only vaguely heard about elsewhere. In particular, I was especially impressed by his comparisons between term deposits and shares. I was also quite moved by the stories of successful people he discusses towards the end of the book as well as his focus on having worthy goals in life.

    I am just a beginner to investment texts, so feel free to point me out where I have made inaccurate statements or used illogical arguments.
     
  11. patrolit

    patrolit New Member

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    I have just finished reading this book for the second time, I find as someone with limited knowledge of the investment world that his book makes a great deal if sense. Especially since I am looking at 30 years plus for keeping my share purchases.

    Even though he does seem biased to the industrial sector. I am not sure if this is just to make his book look good, or it genuinely is a good sector for long term company growth compared to the other sectors if the market.
     
  12. Waimate01

    Waimate01 Well-Known Member

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    I listened to Peter present at an AIA seminar last week - a very good presentation. For those who are not aware of them, the AIA seminars are really good. Not expensive, and not filled with people wanting you buy their expensive software or training courses. Michael Kemp also presented ("Building Real Wealth"). Both these guys are worthwhile paying real attention to, IMO.