Expert Bust #12 - Long-term focus

If you could only invest in one of 2 markets and you knew the growth would play out in the next 25 years as follows...



...which would you pick?

It seems obvious until you see this...



Sell out of A after 5 years and buy in B.

This will only work if the growth difference between A and B over those first 5 years exceeds the cost of selling and buying again.


Loads of industry experts will tell you that Xyz has outperformed the national growth rate over the last 30 years. But they ignore how that growth played out. Here's an example...



Yes, 700% growth is pretty impressive (Hawthorn) compared to 400% (Australia) over those 28 years. But it was neck and neck for most of that. Hawthorn is not a "long-term" out-performer. It's a "recent" out-performer.

Capital growth over almost any 10-year period dwarfs the growth over the prior 50 years. That's the thing about compound growth.

It's far more likely to have "above average" growth over the short-term than over the long-term...


If you want to outperform the averages, you probably need to have a short-term focus.

 

Sounds good.

Now tell me exactly where to buy now for Market A which will out perform over the next 5 year period & then tell me where to buy in 5 years time aka Market B.

 

The difficulty is, why a market showing no difference from the mainstream for a long time, suddenly shoot off? Gentrification? Overseas buyers? Government policies or...?

 

Currently, A will be Brisbane/Perth/Adelaide and B will be Melbourne after 2025 if we are China friendly again.

 

That seems a fair enough statement to make. The nuance and trick will be... what kind of housing stock will shoot off most? Most probably, detached single family homes in good suburbs. Per the logic in the OP's charts... You would have to ensure that the buy/sell costs on trading property A (Which would be a lot cheaper; probably $500-$700k initial purchase price) on year #5, and then re-buying the same stock type in Melbourne in year #6 which would be at least a $1M+ purchase price at that point in time.

 

I don't know that I'd call this a comparison of long or short term in the market. This is really an example of how timing the market correctly can create huge benefits.

It would be easy to do if my crystal ball didn't have a crack in it.

 

Couldn't disagree more with this myth-busting myth.

Practically, it's a mug's game trying to figure out which market has had the growth and then switching to a new market and adding in the buying/ selling costs, only to regret when the original market keeps trending north.

No one can predict this - And doing so makes it an equities play - even then most get burnt!

The level of external factors, gov meddling, macro and prudential policies, immigration, local factors, natural disasters, pandemics et al will have this strategy as a scatter-gun approach to prop investing.

I invested in Harvey Bay c 2005/06 after it being recommended as the suburb which will show most growth out of thousands of suburbs in Aus in the 'paid' report I bought from Residex. I thought I was hitting the Bulls Eye but it was the worst investment for me. The only investment (out of 40 odd buys) where I relied on these experts. That prop was worth what I paid for it for the first 15 years (bleeding cash each year) and it has just started moving as of last year (up c 25% within a year). If the head honchos and the whole team of number crunchers get it so wrong, then how is an everyday investor expected to get it right!

I think OP is running out of myths to bust now!

 

It's a myth that you can apply any hard and fast rule to investing. Data can be interpreted one way but in reality mean something completely different.

No fixed rules/positions when it comes to this stuff IMHO. Too many variables along the way.

 

It’s funny that you mention Residex because I was transferring some old files to a new computer recently and I came across some old Residex and Hotspotting reports from around 2006-7. Pretty much everything they picked was rubbish in hindsight.

On the other hand, I bought a book by Peter Koulizos in around 2007-2008 (from memory) and when I cross referenced his picks with current median prices, that guyed nailed a stack of good investment areas across many different capital cities.

 

When I first started this property journey, used to buy few of those reports (not cheap). In hindsight understand the basics & buy where you know, ignore all these noise & spruikers, would have done better.

 

What's the difference between John Linderman and Residex? Did he used to work for them and now gone out on his own? I've heard good reports concerning his analysis.

 

Sandstorm I would love a copy of Residex past reports if you could provide them. And any Hotspotting ones too and Koulizos' table of contents. If not too much toruble.

I've been keeping track of the high-profilers' past performance. I have very little from Residex. Years ago I offered to pay full price for their old reports. They refused to sell them at current prices.

 

I've been collecting past picks from about 50 experts over a decade now. It's extremely laborious analysis. Expressing one's opinion, on the other hand, is easy.

I haven't analysed everyone, so I can't say, "no one can predict..." So, I'm keen to see your data and calcs.

 

I was referring to the difficulty (impossibility) of predicting which suburbs would grow at a higher rate than current ones and then selling exis prop with a view that current invested suburbs won't grow anymore and accumulating buying/ selling costs as a result! Statistical modelling does not predict it and I have seen countless examples where the best modelling didn't highlight the suburbs which would do well.

I don't have data and calcs because I am not in the business to predict stuff. I am using my own examples and believe remaining invested long term is a better strategy than selling, paying cgt, agents commissions and then buying paying SD etc and then taking the punt expecting new buys would come out on top after taking account of all costs.

 

Would be interesting to see data which shows the difference in outcome for say folks who attempt to better time markets, pick better performing dwelling types for certain markets, buy value, add value etc, then pull out equity to grow faster. Then compare that to folks who just buy essentially random properties in random suburbs to grow their portfolios. I suspect trying to gather and collate this kind of data to make comparisons through would be almost impossible.

 

Having said that, I have enjoyed a lot of your previous posts and most of your content is quite good quality and valuable - so pls do keep posting.

 

I accept that in the past there have been a lot of failings. But personal observations are limited to a single life experience. A database could bring a broader perspective.

But while on the topic of personal observations, here's one I've noticed: technology changes faster than beliefs. And a lot has changed recently in the data age.

Expert Bust #13 (coming soon) is based on an article that showed how a trivial buy-hold-sell algorithm outperformed long-term holding more often than not.

 

Actually what the graphs presented happened personally to some of my property investments.
I sold '3 lemons' or 3 off Property type A and reinvested into Property type B with excess funds invested into another property.
Just had informal appraisals done as doing refinance again with the broker (appraisals blew my mind off how much equity just grew - are others experiencing the same?), so after Analysing the sold and invested more premium IPs did just that produced a much higher $ value in the same timeframe, although did add a renovation to the equation.
I think the above charts can relate to opportunity costs, when many say a poor performing property doesn't cost me anything or much or even produced some income, but if the funds are reinvested into a better growth property or better property investment then the move was actually worth it.
However, I think some strategy tweaking is required and some luck in picking the right suburb and property etc... simple to understand perhaps not really easy to do?
Hence why playing Monopoly worked for me, buying average type houses, then after many can afford a more premium one with reno, but only possible on many IPs and time and economy doing it's thing.
I think boom of all booms is coming to some fragmented property markets in AUS, many investors may be just catching on, imagine 2% rates locked for 4 years so on $1M loan that's about $400/week in repayments. Also, what is their cash earning them currently in the bank, whereas recent price increases create FOMOP (Fear Of Missing Out Property)!
Interesting times indeed!

 

That's strange that Residex wouldn't sell you (let alone give you at a discounted or nominal price for research purposes) historic reports. I can only take that as a red flag. If they had outperformed, I would think that it would be in their best interests to shout it from the rooftops.

I distinctly remember that their top suburb pick (No.1 of 100 best growth suburbs) in all of Australia in around 2007/2008 was Sandstone Point in QLD, with a projection of 10% capital growth over the coming 5-8 years.

At the time the median price in SP was around 370k. 10% compounded growth over 8 years would result in a median price of 370000(1.1^8) = $793,127 in 2015/6. Instead, the median price of SP on realesate.com in 2021 is in the mid 400s. At end of 2015 it was 395,000. That's a compounded annual growth rate of only less than 1%. That's an almighty miss.

Here's an old somersoft thread on the topic from the time: Investing in Sandstone Point Qld

I found a copy of Koulizos's book online in preview mode which a lot of the content is available: The Property Professor's Top Australian Suburbs. He also issued revised revisions of the book over the years but I have not read them. The book I read was from published in 2008.

Lots of hits by PK looking back with the benefit of hindsight. PK had Braddon (ACT) on his list. I had purchased a 3br duplex in Braddon before reading his book. It was an ex govi house which I bought from the government. I paid 380k and its worth around 1M now. I was also looking at a 3br terrace in Chippendale based on his book in 2009/10. I was also living abroad at time and during my 2 weeks in oz on holiday, there was not a single one on the market at the time so I didnt buy. I think they were selling for around 1M or 1.1M at the time.

Other suburbs he had in his book were: Annerley, Lutwych, Norman Park, Albion, Woolloongabba (Brisbane), Erskinville, Chippendale, Leichardt, Sans Souci, Marrickville and Kograh (Sydney), but he also covered Adelaide, Darwin, Perth and Hobart.

Hotspotting was a real mix of mainly regional boom-town recommendations, based on infrastructure spending: Harvey Bay, Gerlandton, Gipsland, Ballina, Magentic Island and Cedua. They did also have Chippendale in their list.

 

This is very true, data can be too broad, or too narrow and becomes meaningless as not reflection on what has happened or happening on the ground
See this often.....Take it with a grain of salt