Why Shares are Better Than Property

Exactly I agree, shares are an income exercise, especially for smaller lots, once they permit I can offload and duplicate for wealth building exercise via IP. That's all I meant by it!
However, IMHO the last 5 years I would have invested in US indexes as our ASX being heavily exposed to mining and finance sectors does not permit much diversification really... they have tech, consumer staples, other such exposure markets which we are limited in AUS.

 

Hi Alex,
I mean well located properties, if you have IPs in poor locations than yes defaults have occurred, now what % are these relative to investors in stock exchange loosing their money? Also say you had to sell, well how much would you loose, not all, some value is still recovered, you may be up for the downturn in value, then the stamp duty and/or buying and selling costs (these are not IPs in mining towns or tourist or regional areas that I am illustrating - that's not my investment strategy!). BUT, if you bought in major cities like SYD, MEL, BRI, in middle and inner ring suburbs I doubt after 30 years you made a loss, is every owner who lives in their own PPOR, a house they bought a Titanic, I doubt that, past history illustrated that (we had disasters, wars, conflicts, attacks, etc..., yet my PPOR still costs more, why?).
If a share is a similar bad investment to IP then you may not be able to sell quickly, sell at all, if the liquidity and value of the stock is worthless. I doubt index in shares is then more stable.
So I do not have a crystal ball but I try to copy those that were successful and made wealth through real-estate.
I am just illustrating high level example, a strategy I plan and use for at least 30 years being in well located areas in real-estate. No one has total control of anything even our lives, but I would choose a stable less risky investment returning a decent CG + CF, over long period of time, than any other asset class, as a strategy for my wealth building exercise. I hope that makes sense?

 

Recently I came across interesting article from ASX, see what you think....

Ten Commandments that point to a better path to wealth

By Marcus Padley, Marcus Today
July 2017
7min read

Beginners, thou shalt not covet the investment clichés.

If heaven had been a stockmarket, Moses might have come down from the Mount bearing two, entirely different, stone tablets. The Ten Commandments of equity investment perhaps, a philosophy designed to sell investment products and keep the clients in them with as little hassle as possible.

They might have read something like this:

1. The market always goes up.
2. Buy and hold.
3. Invest for the long term.
4. Diversification.
5. Rely on the miracle of compounding returns.
6. Invest in businesses not stocks.
7. You can’t time the market.
8. If you aren’t willing to own a stock for 10 years don’t think about owning it for 10 minutes.
9. Our favourite holding period is forever.
10. In the short term the market is a popularity contest. In the long term, it is a weighing machine.

And much like the real Ten Commandments, most beginners in the stockmarket adopt these subliminal directives without really arguing them through or asking “Do they make us money?” I’m not sure they do. These are philosophies designed by product sellers to keep us invested; philosophies that serve the financial industry’s purposes first and ours second.

So, beginners can start with a blank canvas, not with a brain befuddled with stockmarket cliches.

The stockmarket is not easy. Approach it without a business-like structure and you might as well shake a bag of money off the top of a mountain. Would you give $10,000 to a stranger to invest if they didn’t have a convincing framework that worked?

Treat it like you were running a business: have systems, records, rules, a budget, goals, risk management, attrition and constant improvement. Without method and reporting, without structure, nothing will improve. The alternative is what most new investors do, make it up as you go along.

Pride and prejudice

Making money is not about predicting the future, nor about setting stocks in stone on the back of faultless long-term analysis. And it is not about being right and having faith. It is about entering stocks with a high probability of them going up over your chosen timescale.

That’s the best you can do. It doesn’t involve predicting the future. It doesn’t require your judgement to persist beyond the moment of purchase. It involves playing the odds, and it is done on the understanding that things change.

Professional traders know this. They are not proud. They know that things will change, that they will get things wrong. The difference is they do something about errors rather than stand by some grand but flawed declaration through thick and thin.

There is no room for pride and prejudice in investment, or for liking or hating. Those emotional responses have no value in a market devoid of emotion. Understand that investing in share prices rising is not about black or white, but about probability and your game is to narrow the odds.

If you can understand that anything is possible and that no one knows the future, you are half way to being ready.

Let’s face it, if all the kings and queens, presidents, central bankers, brokers, financial advisers, accountants, doctors and taxi drivers didn’t know there was going to be a global financial crisis, how can you possibly know what’s going to happen next?

The best you can do is invest in the likely, based on your research, but be watching when it goes wrong and be decisive in doing something about it. Things change. This is not a job for someone who has “faith” in stocks or the market.

Not selling

The often subconscious suggestion that you should never sell comes from years of indoctrination that the market only ever goes up, that doing anything short term is rash, and that because intelligent investors like Warren Buffett ignore the short term, others should too. But not selling is the Achilles heel of any investor.

Hopefully you will find out very quickly that selling puts you back in control, with cash and all the options in front of you. The emotion, fear, greed and sleeplessness disappears and suddenly you are waking up hoping the stock that was upsetting you goes down, having spent a month ripping your hair out because it wasn’t going up.

Holding cash is a powerful position. Do it often as a beginner because you learn more from selling. Selling invites analysis of what happened and through that experience comes improvement. Hold a stock until it goes bust and you learn nothing.

Two sidenotes: 1. The financial industry is here to get you in, not let you out. They almost never sell. The decision to sell should be yours and if you use a broker or adviser, you will have to be assertive to get it executed. 2. If anyone tells you “If you never sell you never take a loss”, they’re an idiot.

Being short term

But anyone who plays the market in the short term goes nowhere in the long term. How many people have to say this before investors learn. Does every investor have to lose money first? Experience will teach you that you will not make money if you focus on today’s stories and ideas. You will make money picking stocks you expect to go up forever, not today.

Investing is not for the impatient. If you are impatient you have unrealistic expectations. If you want to be a successful investor, lower your expectations. Investment is about consistent returns over a long period of time, not about making a killing.

What to do

Let me propose an alternative Ten Commandments for any new investor:

1. Focus on just a few stocks. You cannot transform yourself with 20-plus. If you want extraordinary returns find one to five stocks that you get to know very well.

2. Do the hard work. Spend one hour doing work on a stock and you will end up in the top 1 per cent of people who know anything about it. Do 10 hours work and you end up in the top 0.00001 per cent who know anything about it. Someone who has followed and traded the same stock for a year has an even bigger edge. Get to know a few stocks. Find some favourites.

3. Be contrarian. There is no transformation in playing with the herd. Learn to identify extremes. Armageddon is opportunity. I doubled my money in Elders one year and could have tripled it. Doing the work and spotting the turn is where the money is, in what the market doesn’t expect, not what it knows.

4. Develop a technical discipline. Technical analysis alone will not make you rich but it is a tremendous risk management system. A share price is not a line on a chart but that line represents thousands of people saying, “You’re right” or “You’re wrong”. That’s a useful piece of information. When they start saying you’re wrong, don’t be smart.

5. Network. Ten ears are better than two. Expand your group of investing friends. You only need one or two ideas a year, so what if you do waste a few hours over a bottle of wine and strike out?

6. Use everything. Use fundamental research and technical trading skills. It’s all contributory information. Too many value investors and traders are blinkered. Pride? There’s no place for that.

7. Don’t make mistakes. You cannot transform yourself with good stocks if bad stocks are constantly chopping you down. Controlling losses is easy because they are right there in front of you on your spreadsheet. Sort them out first.

8. It’s about stock prices, not businesses. It’s an arrogant investor who thinks their money is invested in a business when the herd controls the share price. Share prices are half psychology, half value, not 100 per cent of one or the other.

9. No ego. No one is that good at investing and cannot learn something new. You will change your methods many times so be flexible, respectful and open-minded.

10. Enjoy it. No one does anything well when they must.

 

Yeah, the irony is very strong in this one. Padley is a full service broker, selling managed account services and newsletters. Its in his interests to convince you that you need a "gun" stock broker like him who has the secret sauce! Classic stuff. There are a few kernels of truth in what he says, but its pretty obvious all of is articles are around selling his book.

 

When a share investor has a margin call, they don't lose everything due to maintenance margin. In case when the property prices go down and following defaults, it is possible to have a scenario when everything is gone and that investor has only debts.

Example: An investor buys a 1M property with 80% LVR (200K deposit and 800K loan). The prices go down by 30% over a few months, so the property price now is 700K and investor can't sell the property quickly. That investor defaults as he/she can't make repayments due to fallen rent. Bank sells that property quickly and use that 700K to cover the debt. In result, that investor loses 200K deposit and still has 100K debt.

Same for relatively new owner-occupiers: when prices go down, it means there are major problems in economy, unemployment / underemployment, etc., so a borrower may not able to pay, their property is being sold, no profit, only loss.

If OO has 1M loan and 900K on their offset account, of course they don't lose everything even when property falls to 200K

If investor has a buffer, then they can save something after crash. If it is a new investor or investor who leveraged as much as possible, they can lose everything (regardless if they started investing 5 years ago or 30 years ago).

Any investment strategies work well only when the markets are growing over long-period or at least flat. With falling market we can have only loss. But with share investment, you can act quickly and you save some value either because you did not leverage or because you set up a stop loss order or in case of a margin call you still save something. And it is possible to make money with shares even with long-term falling market.

 

I have the same opinion of Motley Fool. They helped me with tentative steps to get started in 2014 but since then have learned much more here and elsewhere. The Thornhill stuff, reading of buffet and common sense helped put it all in perspective. Still and will continue learning.

 

Here is to my first post in PC.

longtime lurker first time poster, i didnt read every post so i am not sure if anyone mention this
why share is great ?
franking credits.

i used to be a property only guy, i am now both. like all investment, try to lose minimum and win maximum.

another reason i got in to share is because of diversification, if anything property guys can learn from the stock market guys is to diversify, never put all your eggs in one basket no matter how well or how much you know one industry

 

This is a good one. If you have 4 houses and bought a 5th house in a mining town, you don't just have a small exposure to it, you have a fairly sizeable one, of about 20% of your portfolio.... with shares you can divvy up the investments up much better.

 

The real issues are govn and regulatory which are heavily weighed against real estate.

What i would not do is spend money on gurus or buying LICs and ETFs.

 

What do you suggest a mattress of some sort?!

 

@Piston_Broke sorry I probably overlook ur previous posts but could u plz repeat ur thought on LICs not being a good income producing investment again?

 

Well there are quite a few factors that are showing long term negative effects to investing in RE.
- Home ownership is on the way down. Less voters own houses, less gov support for home owners.
- More voters who want welfare and expenses paid for (like tampons), more voters for higher taxes.
- RE is an easy target for taxes.
- Many taxes already on new properties, they're built in development costs.
- Empty room tax is coming.
- People who get paid for doing nothing have no incentive to own investments of any kind.

Seems we have reached a point where the percentage of non producers will soon hold the voting power as both parties cater to them and court their votes.

So the objective is to get out of the system, minimize tax and exposure to the coming marxist economy.
Most likely this would mean diversifying income streams from multiple countries.

 

I do enjoy your posts. You remind me of Samity Sam:

 

Thanks, but I am Samity Sam!

And I would like to point out that i refer to Australian RE.
I am currently looking at RE in Asia (mainly Thailand, Malaysia) and SA.

But in locally more REI i think is off the cards for ay least the next 10 yrs for me.

 

Agree I'm not on the LIC or ETF bandwagon either....and that's coming from a retired stockbroker.

 

Shares are easier to use in with a strategy of Recycling Debt as they are easier to buy and sell with less transaction costs than property. Speak to your financial planner and tax adviser about using this strategy.

 

another issue with property, low diversification.
share market allows you to diversify into many different segments, including property.

 

every industry has that, just that with property you need to directly spend time understanding it, in the sharemarket you let the company understand and control it for you.

 

Agree Terry, I myself dabble a bit from time to time, I suppose from past experience, and it may be the way to start for the younger generations accumulating some funds. I am thinking where to place our young adults funds prior to purchases or when growing their Super when starting out. There are markets for many asset classes based on someone's risk, knowledge and situation in time!

 

I was rereading some of my saved stuff and found this snippet from one of my favourite Investing authors, Bill Bernstein. It’s only a single sentence in the snippet but to me it sums up one of the main things I hated about owning IPs. I’m sure at least some here, despite being a property forum, can relate to: