The investment cycle

Hi There

I'm not sure if this has been discussed previously, but I was wondering what people think about the often-published investment cycle. Sure there is a cyclical nature to many investments, but how much weight should we give to it in terms of timing investments? I realise you cannot accurately time markets, but I am talking about more generalised timing.

Everyone talks about property being flat and many are talking about a correction in the share market.

So what are the views for the future?

Are interest rates really expected to rise before anything else?

Would people here actually invest in bonds, annuities, gold, etc or would you ride out high rates with careful property and share selection?

Some people are saying there are a couple of years left in the share market, but then a few are calling it much sooner. A respected investor friend of mine is calling it for August 06.

So I guess the last question is, would people here be looking at property, shares or neither at the moment?

I, personally, am worried about the opportunity cost of buying at the near top of the share market. Sure I can take a long-term view, but am I better off taking a long-term view of property now?

Is anyone else here in the same predicament?

-T-

 

I just saw this on news.com.au:

________
Property boom as rates rise
HOUSE prices are set to boom as experts tip an interest rate hike.
________

Am I missing something? Sure the article hints to a slight uptrend which the RBA may respond to with a small rise, but what a heading.

 

T,

I completely share your frustration. There is always a lot of ongoing dialogue about "timing", and when is the best time to enter a market be it property or equities. At the moment, most macro indicators suggest the Australian residential property market is flat, having come off a record boom, and is likely to remain flat for a while yet. How long is anyone's guess. On the equities market, there are divergent views about whether the market represents fair value currently or is going bubble. I'm in the camp that there is still a lot of upside left in the equities market, but you definately should not be basing your decision on the view of some anonymous guy on an internet forum!

So, you'll need to do your own due diligence, which it sounds like you're doing already. At the end of the day, the markets do cycle, but if "time in" the market is your game then you can buy at any stage in the cycle and just ride the underlying trend. If you really want to "time" the entry, then more due diligence will be required.

There's a thread here that I started with some interesting dialogue about the state of the relative markets here in Australia with some links to external sources to justify my view. That might be a good place to start to form your own opinion. Here's a link to it:

http://www.invested.com.au/forums/showthread.php?t=741

Of course, regardless of the market cycle, there is always bargains to be had if you work hard enough and are selective in what you buy. But that's a lot harder than just riding the trend in a booming market.

Cheers,
Michael.

 

Thanks for the reply Michael

As obvious as that sounds, I really should keep trying to use the info available to form my own opinion. I have already started this and it must be working because I am starting to disagree with what other people are writing/saying.

I am into my third paper of my new subscription to AFR and as surprising as it may be, I have learnt quite a lot from reading only a small portion of the articles. Prior to this, I think was concentrating on the micro issues when really my main dilemma is based on macro issues; so thanks for the advice.

The reason I am interested in this so much right now is that I have quite a bit of equity sitting in a few properties doing absolutely nothing. So my dilemma is really about where I should go next.

Anyway, it would still be great to hear the opinions of others.

 

T,

Well done on the AFR subscription. I think anyone serious about investing should subscribe to that publication as a minimum. Fortunately, my company does so I always scan it over a coffee in the morning.

There's an interesting article about Japan and Europe's resurgence on the front page of the market wrap today. Those are two economies that my diversified portfolio intends to incorporate.

The main benefit from educating yourself about the state of the markets and the economy globally, is that it will remove the "roadblocks" from investing and free you to make some money. Lack of understanding often causes the novice investor to sit on the sidelines whilst the educated investors are cleaning up. That was me not so long ago, but never again.

Good luck with it,
Michael.

 

Above news require 1kg of salt, 2.5 of pepper, 7.3 kg of chilli and 0.5 kg of dynamite....

 

hehe Every time my father calls and says 'I heard on the news today...', I say stop right there, tell me the exact opposite first and let's go from there.

In this case (news.com.au heading) it would be: 'Property is flat and there is no interest rate rise'. Gee, what a coincidence, the opposite is much more accurate.

 

I'm getting there, slowly... what I just found was very amusing though. A full-page ad which is basically a nasty public message from Patrick to Toll.

 

T,

The same as there is more than one sector in the stockmarket, there is more that one town/suburb in the housing market. Some will go up while others go down. The news reports usually proclaim the average for the city or state, after the fact. So by the time the average price in Sydney, Melbourne, etc, starts rising you can bet that some of the more desirable areas hit bottom and began rising at least 12 months beforehand.

Some cities still have some suburbs falling while other suburbs hit the bottom 12-18 months ago and have started to crawl their way back - but on average the city is flat or still falling. Note, this doesn't mean a boom is imminent, in fact some areas are just starting to fall and noone has told Perth or Darwin yet that the party is over. IMHO I think it will be a slow rise from the bottom of the cycle for most and some areas won't beat inflation for a year or two after the bottom of their cycle.

I'm not sure about property prices rising with inflation. Seemed to be the opposite last time and a lot of people on 95% loan are really going to hurt (and sell) if the interest rate rises 1%.

I wouldn't wait for the news to announce a property boom in any case, by then you've missed half the chances and some of the best positions.

Dave

 

Thanks for the reply Dave; some good points there about the markets not being all encompassing and securities not being all equal. Points of view like that really seem to help widen my perspective.

My personal feeling is that there is more risk in well-selected shares than in well-selected property at the moment (obviously not in hindsight if they actually were well-selected ). I realise shares are higher risk anyway, but I think there will be fewer surprises with the property market. Sure that's a fairly simplistic view, but it's where I'm starting from. My outlook is still long-term, so while timing isn't paramount at this stage, it would still be nice to get the benefits of good timing. I figure that my options are:

a) Go for property and know I am buying at close to the bottom of the market (in my area anyway). I may have to wait a couple of years to see any growth above inflation, but I really don't see losses on the type of property I would buy. There is always risk, but that's my (somewhat) informed prediction.

b) Go for shares, stay well away from resources and possibly a few other sectors; maybe stay away from finance. A lot of people talk about following the money, riding the trend, etc but I don't know enough about these sectors to do that; I would be riding the bull blind. There are always MFs, but... ummm... I don't know, more investigation needed.

Anyway, just thinking aloud; it actually helps.

As for the media, the nature of the 'every day' media seems to be very alarmist, but the few recent articles I've read in the AFR seem to be on the money. Not so much due to the fact that they're written by experts, but more to do with their reasoning. I realise they don't always get it right, but at least the information makes sense (not like the headline: Property boom as Rates Rise!).

Thanks again for the replies guys!

 

What boom?
Well, nobody told me about it!!
I'm sorry, but I'm of the opinion that until rental yields catch up and affordability improves prices will remain in a plateau period in most of Sydney. Yes, there are always going to be areas of high demand that will buck the trend (no matter what stage of the cycle we're in) and people overpaying at well publicized auctions because they fall in love, but generally we are in a bit of a lull.
Having said that, buying opportunities abound for those willing to do their homework and work hard to find them. It may take longer, you may face rejection and spend money that you didn't want to (b/p reports, solicitors etc) but you have time on your side in markets such as the one we're experiencing. In a doom and gloom market, why not make the most use of your housing dollars and negotiate hard to get an even better result?

 

Consider yourself told, hehe Rates are going up so that must mean a boom is imminent!

Seriously though, I'm catching onto this homework business. I have found two properties in particular that only a mother could love, but I can see through their weathered facade. I can see why they are so cheap, but I can also see how to oh so easily add value. I just wish my broker could get his act together!

I've got an appointment with a different broker next week (he was recommended on here the other day, and is local). So hopefully he can organise things a little better. I have faith!

I have never been involved in 'adding value', so I can't wait to get my hands dirty!

Thanks again all.

 

AFR comes out every day doesn't it - do you subscribe to the lot or is there one days issues that's particularly better than the others?

 

It comes out six times per week. I subscribe to all six. I have only been through a week now and realised today must be the careers issue; lots of jobs advertised. The weekend edition is more weekend-like. This weekend is going to have a spread on property investment.

It's only $62 a month so I snuck it into my salary as a subscription allowance.

The other guys here should be able to expand on the different issues. Market wrap is in it every day and as you can guess, it's a wrap of the market (mainly shares and derivatives - edit: and futures/commodities, I guess, and probably more too)

-T-

 

Hmm. thats allot of reading to do. Thanks -T-.

 

Hehe, I don't read all of it. I don't really know what the etiquette with reading AFR is, but I just skim through it and read when a heading catches my eye. That may equate to about 5-10 stories. I also read those little highlight bits in the front that usually point to a story further into the paper. That way I get a rundown of the main stories and can then chose what to read.

I must admit though, I've been spending a whole lot of time reading this week and not much time working. That's going to have to change sooner or later.

There have been some good generic stories too. I read that the Snowy Hydro company makes more money when their systems are off then when they're on. They issue securities to other energy companies who want to hedge risk. So we have this great hydro power system that could support 70% of Australia, but is only on 14% of the time! It doesn't sound right, but that's what they said.


-T-