Pete Wargent blogspot

Co-founder & CEO of AllenWargent property advisory, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds, & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

"The most knowledgeable person on Aussie real estate markets - Pete's work is great, loads of good data and charts, the most comprehensive analyst I follow in Australia. If you follow Australia, follow Pete Wargent" - Jonathan Tepper, Variant Perception, Global Macroeconomic Research, and author of the New York Times bestsellers 'End Game' and 'Code Red'.

"Pete's daily analysis is unputdownable" - Dr. Chris Caton, Chief Economist, BT Financial.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Friday, 13 January 2012

"Neither a borrower nor a lender be."

It interests me how proverbs written sometimes thousands of years ago still ring true today.
This one was written by Shakespeare over 400 years ago (wise old man Polonius in the play Hamlet!):
“Neither a borrower nor a lender be.”
Very wise words.  I’ve only been involved in lending friends money a few times and it’s created tension and trouble every time.
When is it OK to lend?
There are essentially only two types of investments: ownership investments (commodities, shares, business, property) and lending investments.
Lending investments include assets such as bonds, bills and notes (and their Government equivalents T-bonds, T-bills, T-notes…) and involve you effectively lending a company or Government your funds in return for regular interest payments (‘coupon’) and, hopefully, the return of your capital at a future date.
There is a time and a place for lending investments.  They can be lower risk and so assets such as bonds are ideally suited to those nearing a retirement age (shares can be volatile) and can be used as a hedge against potential deflation.
In a capitalist and inflationary environment, though, ownership investments over time create greater wealth – because they allow the investor to participate in capital growth upside.
When is it OK to borrow?
You might sometimes hear reference to good debt and bad debt.
Bad debt is said to be borrowing for buying consumer goods – cars, plasma screens…anything that depreciates in value.
Good debt is said to be borrowing to buy assets…margin loans to buy shares or mortgages to buy investment properties.  This is sometimes also known as using gearing or leverage.
Gearing in this manner definitely can work.  It is a time-tested method of wealth creation.
Go easy, Tiger
Don’t be misled by the term good debt though.  Debt can be a useful tool to create wealth, no question, but too much of anything can kill you.
There was an old classic theory of finance that said that the more debt a company took on, the more it was worth (because of the tax shield – interest payments being tax deductible – and because the debt could be used to create more wealth).
Yeah, OK, that’s fine in theory but it didn’t work for Enron or Centro, did it?  Some debt is OK; too much debt that can’t easily be serviced is dangerous.
Low LVR
That is why I suggest keeping loan to asset value ratios (LVR) reasonably low.
Personally, I have some interest only loans because they can super-charge wealth creation, but I have some principal and interest loans too to pay down debt.  The LVR on my UK properties is less than 50%, for example.
***
Arrived in Tasmania last night on the ferry.  It was a reasonable crossing but still felt a bit queasy, though dealt with that by having a curry last night.  Marvellous.
Beautiful sunny day, so going to hop on the ferry across to (West) Devonport, and hopefully catch a bit of the Test Match on TV later.