Sign of the Times

That's gold. I have been preaching to my friends about LICs and a number have 'seen the light' ;-)

 

You might be on to something there @Biz. People lose confidence and get spooked for that exact same reason – new variable into the mix. Like you said, a threat that we have not seen before. At that very stage, people start question whether it is going to be different this time. There will be plenty of people writing articles stating exactly why this time it is much worse than before. Then, you will find your esteemed shares thought leader who you looked up to all those years tell you that he is not confident that things will recover and ever be the same again. Your favourite posters on the forums such as this tell you that they are taking their profits when they can. Your spouse keeps asking you if you know what the hell you are doing or if you are taking the family's lifetime of savings and p*ssing it up against the wall. You will start worrying not just about the recovery but who long will it take for it to get back to where it was just a few months ago? Will it be another 15 years? All the people I respect said dividends remain stable but here it is cut savagely and continuing to slide? Will we experience another Japan like scenario? Hang on..I will be well past 60 by the time I get back in the black if my respected shares guru is saying so.

That is when we will all find out what we are really made of. Till then, it is all make believe. Like @Biz says, if the exact scenario that led to the GFC plays out, we will all be smiling, leveraging up even and buying, boots and all. However, when the aliens invade (substitute your favourite nightmare here) all bets are off. The forum will go on as normal; as it has always done. People will probably go back to spruiking how the post-APRA era is over and how there is an opportunity to make money in bricks and mortars. Oh, how silly we were thinking property was not the only way forward. I mean, they say safe as a house for a reason, of course.

Respect to those of you who kept their head during the GFC. But if anybody thinks it is going to be easy, they are kidding themselves.

 

The share Investing approaches often discussed here are extremely simple. They can be summed up in a few dot points.

But a lot of other discussion is about trying to prepare new share investors psychologically for sharemarket crashes / gloomy times. Without a strong belief in one's investing approach it's very easy to end up doing something stupid at the worst possible time.

I'd be lying if I said it was easy to keep investing and to avoid selling in the darkest of times such as during the GFC. But that's what needs to be done. I've posted this before about what I personally experienced during the GFC:

1. Firstly there is euphoria over the wonderful buying opportunities.
2. No matter how hard you try to manage gradual averaging down it is highly likely the fall will overshoot your worst expectation.
3. You become peeved off that you've run out of cash / borrowed funds to take advantage of further falls.
4. Your stocks keep plummeting and anxiety sets in despite your knowing what happens historically with recovery after these events. Uuummmm what if it is different this time, Japan scenario?
5. Your stocks plummet even further with anxiety turning into one feeling somewhat miserable.
6. Your conviction to Buy and Hold will be tested BUT YOU DON'T GIVE IN.
7. You continue to monitor your stocks less and less because it increases your misery.
8. Eventually you stop looking and focus on other things in life.
9. Despite occasionally feeling a little down you are thankful you took the dividend investing approach as the lion's share of dividends being paid prior to the crash continue to flow into the bank account (especially with quality LICs). And of course there's the personal cash buffer to smooth dividends if needed.
10. After awhile you dare to occasionally check in on your stock portfolio. Things are looking better. You start feeling more cheerful. Yes I knew it would be alright whilst patting yourself on the back for having the balls to have hung in there.
11. You now start getting a little excited as the cash / borrowed funds are building up again. You know there may be a bear market coming after the initial post crash recovery. Plus there is potential for some juicy capital raisings via SPPs and Rights Issues etc as companies seek to strengthen their balance sheets. Woohoo some more great buying opportunities.
12. Things start returning to some kind of normality. After all the bargain hunting you find it difficult to buy stocks now they are more expensive.
13. You start wishing for another crash to come along reminiscing about all those wonderful income streams purchased dirt cheap during the previous crash / bear market.
14. And so the cycle continues as it always has ...

I'm no hero but I did stick to the plan. As for cleaning up I'm not sure that's the correct description but the income streams purchased at a big discount during the GFC certainly helped bring our retirement forward a few years at least. As retirees we have zero debt. But we will draw on the LOC again when the next crash comes along. There's no better time to borrow to invest.

Not advice:

 

Yeah, but if it actually is "different this time" then cash won't hold any value either. Neither will bonds, neither will gold.

The only assets you can diversify into that will hold value are a patch of land in the middle of nowhere, a small flock of livestock, some firearms and lots of ammunition.

Any event sufficiently large to truly permanently destroy the value of all businesses in all countries in the world is enough to reduce us all back to subsistence living.

 

Spot on @ACMH16.

If the scenario is so bad that all productive enterprise becomes worthless then IPs will be in the same boat. Believe me your investments will be the least of your worries.

Other than owning our own home I mostly do the following:
1. Invest in diversified Listed Funds for their income. In 40, 50, 60, 70, 80 plus years these LICs I invest in have never missed paying a dividend in any year.
2. Keep a cash buffer for a few year's worth of living expenses to top up dividends during gloomy times if needed.

Bear in mind even during the Great Depression dividends were only cut on average around 30%. From memory dividends were cut around 29% during the GFC. How well do you think IP rents will go if we experience a Great Depression again?

You have to have some hope for the future otherwise you'd never do anything to plan for your future.

 

The trend is always up in the long term. Just depends how long you are happy to wait. Took 30 years to recover from 1929.

Anyway, going of track a bit now. I still think it would take someone of extreme intestinal fortitude to throw going money after bad as the marketing is melting down. Looks like the logical thing to have done in hindsight but faced with new circumstances it wouldn't be easy.

 

Yes the usual scary stats that the anti-shares brigade pump out. They generally choose to ignore the most important part of shares, "dividends". The other silly assumption is that all investors bought everything at the top of the market prior to the crash. Here's another take on this when dividends are included into the equation:

And here's the Aussie accumulation indexes (dividends included) for Australia post GFC:


Except for Resources (rubbish) the GFC peak was exceeded a few years ago.

 

As always on PC a great thread and discussion, highlighting experienced and knowledgeable members and their contribution, whatever the vehicle.

I'm set up and shopping to jump onto the IP train, but still hold concerns as some have highlighted in this thread.

With APRA tightening financing on properties, are these changes also applying to those that leverage into other investments such as shares. Say my example I've pulled 85k in equity (PPOR) for a deposit, which can still leverage OK for an IP, but with shares say, is 50% about the most banks/lenders will allow one to borrow against, and is the criteria and servicing calcs used for these type of investments tightening the same as for property?

So in my situation I can leverage in at say $160k for shares, and lets just say about $350k for property (avoiding LMI). This has always been a positive for property, as shares have to over-perform in comparison to net overall greater gains. So I can see the points in this thread regarding poor IP yeilds and possibly reduced growth negating this leverage..........well given shares perform well long term obviously . If APRA changes are only effecting property lending, that's another stick in the cog for IP's.

I really need to learn more and try and run some comparative calcs I guess to see where the long term gains are really at. I think there's plenty like me that get their head around one but not the other, so jumping into one seems a safer bet (due to ones understanding) , but may not be the best play for ones circumstances.

 

Challenge accepted.

 

I invested through the 87 crash, my first. Survived it and subsequent ones including the GFC. Reasons are different each time but the path generally similar. Never easy I admit. But I am a nervy sort of person so it shows that if you have a plan and faith in it, you can do it.

The wonderful thing about most human beings when it comes to fear and greed is that they never learn. Hence history continues to repeat itself. Use it to your advantage.

 

Damn you Austing, you making me doubt resi again?

 

Just relax and go with the whatever lets you sleep best at night. Don't just focus on the worst of times. That wasn't meant to be the message. These things pass and life goes on.

 

I'm going a bit contrarian to this thread, have been opportunistically selling down some of my share holdings over the last month, and just sold another $70k of WBC and WPL today. I think the Australian market is pushing into the overvalued territory at the moment and expect a correction in the near future when the "trump effect"/shine wears off.

Where am I taking my dough? Brisbane residential property of course! Talk of overvalued property and low yields is still very Syd/Melb centric in my opinion. Lots of good opportunities around oz and interest rates are still very low compared to long term average with a long way to go to get back there and no imminent threat of doing so. Go team property!

 

Share market is not the property market, different triggers and different asset classes.

GFC 2008, share market crashed, and property also took a nose dive, except Melbourne property market it was booming. I think the driver for this was foreign investing?

 

At the time of the GFC I had been heavily into LICs for only a few years and hadn’t developed a strong belief yet, but I was saved by my extremely slow reaction temperament. I don’t get called a turtle for nothing… especially by people who are hares!

While the world was crashing around me and people I know were all panicking and selling left and right (and urging me to do the same) I was emotionally uninvolved and still trying to make up my mind on what to do. It was a very scary time but I tend not to make decisions if I don’t understand the consequences of it, and if a situation felt wrong I wouldn’t make a move until things cleared up a bit.

After the first wave of crashing SPs I looked at the situation and thought, could I survive with what I had left i.e. dividends maybe cut by 50%, rents maybe by 30%, my cash buffer and offset funds, also considering that IRs would probably go down. The answer was a resounding yes, so I sat on and watched.

I watched the crash for about another year, false upturns followed by deeper crashes, always checking to see if my cash flow was still manageable, and it was, easily. Dividends and rents hadn’t moved much by then and my cash buffer was still untouched.

After a while there was a sense of déjà vu and increasing confidence. I started to buy again, not at the bottom of the market because there was still a lot of confusion, but after prices had steadily moved up a notch. As usual I was true to my turtle reputation but I was still able to pick up quite a few LICs at bargain prices with my cash surplus.

My take from my GFC experience:

- Don’t look at prices, look at cash flow.
- You don’t need to be a share guru to survive a share market crash. In fact it may even help you not to be one: it removes you from the coal face.
- Property investors are naturally long term operators and generally super resilient due to their capacity for sacrifice. They have probably the best temperament to survive a share crash.

Not advice.

 

Excellent post @truong as usual.

Wish I was a turtle temperament wise. Unfortunately I come from a family of nervous nellies. So despite my experience, having been through multiple crashes and knowing what I need to do I still find them unsettling.

I suppose I write from the point of view that there are other nervy types like me out there. And yes you certainly don't need be a share guru to survive a market crash. But I do think it helps if you're prepared for such events, have some idea of what to expect, keep your focus on the income (not price), take advantage of these rare buying opportunities and know that no matter how scary things might seem they will pass.

So if a nervy person like me can survive market crashes and take advantage of them then most others out there should be able to learn to do the same.


NOT ADVICE.

 

Brilliant!

 

Yes, you are correct about the GFC, Australia relatively unscathed. Though funny enough during GFC Melbourne property market was the only market that boomed.



Reminds me of the Big Short
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