Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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"I've been investing 40 years yet I still learned new concepts; one of the finest young commentators" - Michael Yardney, Amazon #1 bestseller.

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Friday, 13 March 2015

Experts...or 'experts'

Experts and 'experts'

Being a personal blog page, I riff on all kinds of things here, but who should you listen to when it comes specifically to property market commentary?

You have to snort with derision sometimes at some at some of the petty arguments bandied around on the interweb. We constantly have 'experts' referring to other experts as 'experts', the snide use of inverted commas of course intended to infer that the 'experts' believe that the experts are, in fact, 'experts'.

Indeed, there are so many 'experts' consistently calling out experts as 'experts' that you almost need to be an expert rather than an 'expert' to stay on top of the whole shebang. It's all a load of childish nonsense, really.

I once believed that it was worth reading as widely as possible when it comes to finance and investment, but with the mushrooming of information now available have come around to the view that some opinions and commentators are so crass in their posturing that quality must beat quantity.

Which commentary is worth listening to and which is not, particularly from property investment perspective? Starting with what to be wary of...

1 - Resources 'gurus'

Some property 'experts' (OK, let's retire the inverted commas thing now) were stating with certainty as recently as 2012 that the mining investment boom would somehow continue for decades - nay, perhaps even generations

Some even tipped wildcards such as Port Hedland as a place to invest (inverted commas probably are appropriate here) leading to unrealised losses measured in the hundreds of thousands of dollars.

There's no question that it is easy to get the timing wrong on commodities cycles, of course.

Despite working the resources sector for years, I did so myself, with the mining investment boom running for at least a year longer than I had expected, in part due to monumental cost overruns on Gorgon LNG and other similar mega-projects. No matter, the mining investment boom phase is officially over, and - as it always eventually must - now follows the bust.

Anyone with even a feeble grasp of the commodities cycle should know that when commodities prices rise, supply will eventually come online until downward pressure returns on prices, in turn killing the investment boom. 

2 - Fads

Be wary of investment advisers promoting new fads. Over in Britain, for example, there were books doing the rounds before the financial crisis advising that property investors should only buy residential properties with 8 percent yields almost regardless of location, since only the professionals could source capital growth. This didn't turn out well when the property correction came. 

Fads can include anything and everything from serviced apartments, tourism property, mining towns and "yield" properties in remote locations.

Residential property investment should be fundamentally simple and act as an effective inflation hedge. The further the recommended strategy diverges from long term buy and hold in well-located capital city locations, the greater the risks can be.

3 - Perma-bears and pessimists

Experienced investors know that markets go up and down. Indeed, real estate markets can only ever continue to cycle.

There is, however, a fine line between identifying and acknowledging risks and never seeing an opportunity in anything. Markets will always cycle, so there will be always be opportunities for investors somewhere.

4 - Theorists

Theory is important, but usually the best property investment commentary comes from people have successfully built an investment portfolio themselves, having made at least a couple of million dollars from scratch...and kept it. Even if their experience has largely taught them what they did wrong and what not to do again, the experience generally counts for a lot.

5 - "Specific general advice"

Readers will have noted over time how my blog doesn't dish out specific financial or investment advice. How can it? What is right for one person is not necessarily right for another. 

For example, during my professional career I was head of tax compliance for two ASX-listed companies yet I can hardly pretend to know much about the tax affairs of people I've never met. Be careful about commentators who spout advice without knowing your full financial position (or those who are not licensed to provide financial advice).

6 - Narcissists

Some of the most arrogant commentators believe themselves in an ill-informed manner to be perfect and anyone who disagrees with them as wrong. Some delusional types even claim to be experts in everything leading inevitably to "I've just come across this new idea and now I'm going to lecture you about it" type commentary and books.

Narcissists can spend far too much time trying to justify previous errors or attempting to rewrite history - despite the obvious truth that everyone makes mistakes - they can struggle to learn because they dismiss contrary points of view out of hand. See also "Messiah complex" or "the saviour archetype".

7 - Bullies

The rise of internet commentary has seen an equivalent increase in bilious commentary from bullies which seeks to demean others in the misguided belief that their odious remarks somehow awards them power or adds credibility to their own point of view. Didn't like them on the playground; don't like them now.

8 - Vested interests

We should always consider why commentators hold the view that they do. Just as a barber is not the ideal chap of whom to enquire whether you need a haircut, in real estate a business or expert that buys (sells) property in one specific market, for example, is never going to suggests that it's a bad time to buy (sell).

Similarly a commentator who is on a developer's payroll is only ever going to make positive remarks about the suburbs they are paid to write about. Waste of time reading it, tbh.

Genuine experts

I have learned so much from some books over the years. Many years ago I read an excellent book by Jan Somers called Building Wealth Through Investment Property, which made a lot of sense to me.

Being a Chartered Accountant, I naturally enjoyed the mathematical or numbers-based focus to the book, particularly the demonstration of how the internal rate of return or "IRR" on a property investment could remain remarkably similar in times of lower interest rates and lower inflation.

If there is one book which has the potential to be life-changing it is How to Grow a Multi-Million Dollar Property Portfolio in Your Spare Time by Michael Yardney.

This excellent book took many of the fundamental principles from Jan Somers' classic and codified them in a way that can be used practically by both beginners and advanced investors alike in the 21st century. I have found it to be a quality user manual for creating wealth through property investment.

Another genuine property expert who is always worth reading for his insights is Michael Matusik, with decades of experience in providing new perspectives and angles. You can subscribe to Matusik's Missives here using this special discount offer which is available this week.

Another expert who I always make the effort to follow is John Lindeman. As soon as I read his 2010 book I clocked that this is a guy who genuinely understands the dynamics of how housing markets work in practice.

Lindeman went out of his way to pour cold water on various predictions of a property boom in Adelaide, which was a view held by some back at that time. He was rather blunt in his assessment but his reasonings were sound enough, and he has been proven right.

Finally, if you followed the investment plan laid out in my first book Get a Financial Grip, you will no doubt be feeling pretty pleased with yourself now. There is no magic or secrets to successful investment, most of it just comes from sound analysis and basic common sense.

You still could follow a very similar plan today, though I do note that you would likely struggle on the value investing front with stocks globally trading at increasingly stretched forward PEs - beginners way be wiser to adopt a more conservative averaging strategy today, since value has now become harder to find.

Meanwhile London house prices have been on an extraordinary run, booming by an incredible 79 percent since the middle of 2009 on the Office for National Statistics data series - and by the time this Sydney housing boom has finished its bull run the harbour city will have done better through the post-financial crisis cycles than even London.

Whatevs...I reckon it's better to be lucky than smart, although eventually becoming both would be a nice goal.


Later this morning the ABS reports its Lending Finance data for January 2015.

Expect to see investor lending booming in Sydney to new record heights resulting in strong capital gains in this calendar year.