Pete Wargent blogspot
Co-founder & CEO of AllenWargent property advisory & buyer's agents, 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.
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Wednesday, 22 August 2012
Reading the charts left to right
Read the chart left to right
Two reasons that are often given for not investing now are:
1 – “But prices are at all-time highs!”
2 – “But prices have been falling!”
The trouble is that you could pick almost any time in history and either (1) or (2) would be the case.
One of the problems for investors is that prices in charts trend upwards over time, they nearly always appear to be expensive if you use a historical chart as your basis for measurement.
Stock markets crashed in 1987 and were haemorrhaged again in 1994 – and yet had we loaded up on an index of shares at any given point around that time and held on them until today we would be very happy.
The same is true of property meltdowns experienced in the 1890s, the early 1930s and early 1940s.
We would all dearly love the opportunity to buy at those prices today.
Instead of reading the chart from right to left – looking back at what has gone before – we should be reading the chart from left to right, and assessing what is likely to come.
We should also consider that although the language used in respect of market corrections often makes them sound disastrous and as though the world is ending, this may only be the case depending on your expected time horizon for success.
The biggest problem, then, for investors seems to be the selecting of appropriate time horizons.
The best time horizon for an investment in income producing assets is your lifetime. If that is too big a picture to paint then somewhere around 30-40 years might be better.
Yet today’s news stories seem destined to focus on ever-shorter time horizons: what will happen next year? What will happen next month? What will happen tomorrow?
The fallacy of predictions
Humans are notoriously bad at making predictions, yet we all seem to enjoy making them. But the truth is that we have no real hope of making an accurate market prediction over a short-term time horizon.
That’s not to say that there is any harm in trying, but if we build an investment strategy about what might happen in the next year or three, then we are introducing so much luck into the equation that we are effectively punting or gambling rather than investing.
The language used by market analysts can be deceiving and the level of supposed accuracy can mislead us.
Property market analysts are notorious in this regard: “We forecast the regional property markets of Western Australia to grow by 17.5% over the next three years”.
If you consider the number of factors that must be rolled into such a prediction, the whole exercise becomes slightly ludicrous. The effect of economic growth in China and the USA? The outcome of the Eurozone crisis?
Even the world’s leading economists have no idea how these events will play out, so it’s interesting when property market analysts seem to believe that they can factor them in.
What can we do?
We need to be able to move beyond the fear of what might happen tomorrow or next month.
Over the short-term share markets are notoriously unpredictable yet they tend to return to the mean – average valuations – over the longer term.
In property, based upon projected population growth, likely supply and the target range of inflation, we might make a reasonable assessment that prices will be a decade or two's time, but shorter-term predictions…well, I wouldn’t bet the house on them that's all.