Pensions/Investment

[Iron]

That’s fair enough a lot of people think that Jeff
But It shouldn't necessarily put you off the investment,

Let's say I'm interested in a house that's worth £200,000 at present. If I think a housing crash is on its way, wouldn't it make sense for me to hold fire, and possibly save myself tens of thousands of pounds?

The longer you hold the investment the less important the value of the property becomes.

But that assumes that you'll be able to get decent rental income. In some parts of the country, I'm sure that's the case, but it might be harder in other places.

Let's say you bought a property in Blackpool. Just about the only big employer there is the council, and they've laid off about a third of their staff. So in all likelihood, you'd struggle to find long-term tenants with a steady income (more likely, you'd be renting to people on the dole and seasonal workers!).

Jeff

[freddy]

That’s fair enough a lot of people think that Jeff
But It shouldn't necessarily put you off the investment,

Let's say I'm interested in a house that's worth £200,000 at present. If I think a housing crash is on its way, wouldn't it make sense for me to hold fire, and possibly save myself tens of thousands of pounds?

The longer you hold the investment the less important the value of the property becomes.

But that assumes that you'll be able to get decent rental income. In some parts of the country, I'm sure that's the case, but it might be harder in other places.

Let's say you bought a property in Blackpool. Just about the only big employer there is the council, and they've laid off about a third of their staff. So in all likelihood, you'd struggle to find long-term tenants with a steady income (more likely, you'd be renting to people on the dole and seasonal workers!).

Jeff

Yes Of cause if you knew with 100% accuracy when the housing market was going to crash you would wait to get a better price. But know one knows for sure do they, it might happen next year, in 5 years, or it might never happen at all. And as has had been said if it's income generating it might not matter s much anyway.

of cause there is a risk like with any business / investment, but if i bought a house that fell 50% in value long term and a house that know one wanted to ever rent out i would be a compleate idiot and would deseve everything i got .

There are two ways to make money here so it's extremely unlikely id get both wrong imo.

[superfrank]

"House prices cannot fall!"

No spring bounce this year... http://www.telegraph.co.uk/finance/econ ... onths.html

[Iron]

Maybe Germany is a good place to invest - they seem to be doing very well indeed: http://www.bbc.co.uk/news/world-europe-13335943

Jeff

[superfrank]

Maybe Germany is a good place to invest - they seem to be doing very well indeed: http://www.bbc.co.uk/news/world-europe-13335943

Jeff

Germany seems to have a decent plan, i.e. produce quality goods in the top end of markets that don't compete directly with cheaper Far East stuff.

Britain is lost by comparison. Our old plan of letting the financial sector do what it likes and using the proceeds to bloat the public sector, and selling overpriced houses to each other, has failed abysmally.

[Photon]

It's too easy to generalise and say property is overvalued or that gold, silver, oil, shares etc is overvalued. But there always be time when someone is profiting and someone is not.

BTW I'm not implying that its a zero sum game. The key to any investment as most, but not all, who's contributing to this thread would realise is that knowing when something is over or under valued taking in to account not just the current value in comparison to past but present value of all cashflow that would stem from that investment which is discounted at rate which can differ to circumstances of individual. Its the correct valuation which is my mind is the key to profitable investment but its also all the hardest.

Its all too easy to say something is overvalued or undervalued in comparison to past but as any financial disclaimer will tell you that past is not guide for the future. You have to guestimate the future then this where most people falter.

Property, for example, in most people opinion is overvalued but some Ukrainian dude recently bought flats in London at a record level. Some would he's insane but that what many people would've thought when people paid, what seemed at the time, over the odds amount when they bought in say 19th century.

The average property value at the moment in relation to average income is looking high but I think its inevitable given the planning restrictions and scarcity of land for housing.

Which leads me to my next point which hasn't crossed a lot of minds but its crucial to all asset classes and has huge bearing on investment and that is LAND.

There's a shortgage of both land arible and for housing is increasingly short supply in the most developing and developing countries. There's currently what's now becoming as 'land grab' that's underway across the world but particularly in Africa where foreign companies/governments are buying or leasing land for next to nothing. People buying the land might not use either for farming or housing as soon as they buy but they know that they bought it at a rock bottom price and the only way is up.

So its knowing when something is undervalued which is the key and you can't get that from reading newspaper or checking websites.

I know who is currently engaged in buying land that is nearer to a major road in India and seeing his investment that he made a year and half earlier is trippled in value.

For investment in gold or property or shares to work, you need somebody who is going to give you a higher price then you got it from but for land there will always be a shortage and its just matter or time of where and when.

[superfrank]

but for land there will always be a shortage and its just matter or time of where and when.

There is no shortage of land per se, but prices will vary depending on whether that land is viewed as attractive for investment- be that for agriculture, raw materials, industry, property or whatever.

A few years ago land in parts of Dublin was fetching higher prices than land in prime areas of central London.

There is nothing special about land compared to any other asset class - its value rises and falls based on supply and demand.

Land will always be there - the same cannot be said for fossil fuels.

[CaerMyrddin]

There's currently what's now becoming as 'land grab' that's underway across the world but particularly in Africa where foreign companies/governments are buying or leasing land for next to nothing

In Brazil the government limited the area that foreigns can hold to stop speculation, as more and more land was being sold at bargain prices!

[Iron]

Hi Photon

With regards to things being overvalued, the value of anything is what the market is willing to pay for it, and nobody knows what the market will be willing to pay for anything in future.

That said, I still wouldn't go anywhere near the UK housing market:

A. The fundamentals mean there's a good chance of a crash, and very little chance of the price of houses increasing significantly anytime soon.

B. With instruments like gold or oil (or Betfair bets, for that matter), I can close my trades quickly if the price goes against me. But with housing, exiting can take months and months, by which time the price could have fallen further against you.

Jeff

It's too easy to generalise and say property is overvalued or that gold, silver, oil, shares etc is overvalued.

[Euler]

With regards to things being overvalued, the value of anything is what the market is willing to pay for it

I've never agreed with that sentiment. There is a rough 'true' correct valuation in every market. The market price is not the true valuation.

I buy high yielding steady investments and just sit on them. Eventually the market reprices them and I may sell at that point but usually I'll sit on them at a much higher yield or sell part to net off my purchase and carry the remainder risk free at a very high yield. It's worked wonderfully well for many years. When the market has a firesale I'll buy, but other than that I'm pretty cautious about where I place my money. I was hopeful that after the financial crisis there would be a firesale in property, but it never came. I guess because unemployment was low and interest rates helped support the market.

If property starts to yield above average returns then I will show a big interest, just like any other asset class.

[Iron]

The market price is not the true valuation.

You have statistics on your probability site showing that the prices on Betfair are extremely accurate. Would you say that the same can generally be said of the financial market prices, ie they take into account all known information?

I buy high yielding steady investments and just sit on them.

Let's say the share underperforms and drops in price. What's your exit strategy?

Sell part to net off my purchase and carry the remainder risk free at a very high yield.

A bit like greening up?

Jeff

[Euler]

(1) Financial markets and Betfair are very different. The financial markets act like somebody with bipolar disorder smoking a joint. The Betfair markets are, generally, pretty efficient are move in perfect order and in a predictable fashion. You don't see all prices in Betfair move up or down in unison, that's impossible, but the financial markets swoom or soar depending on which way the wind is blowing. To quote that classic phrase, Short term they are a voting machine, long term a weighing machine.

(2) I bought at a price that is reasonable for yield, so I really couldn't care much about price form that point on. I do care about the underlying economics as that is what will drive the price from that point onward.

(3) A bit

If you want a live example in 2005 the magazine I wrote for asked me to tip up some mid cap stocks. I was a bit reluctant as people want instant results and investing isn't really about that. But I tipped: -

ROR
LMSO
SPX
MKLW
RSW

Each yielded 3-3.5% at the time of purchase.

[Iron]

Let's hope not.

BTW, you might find this article interesting: http://www.telegraph.co.uk/finance/pers ... 20000.html

'Home sellers are being forced to reduce their asking prices by almost £20,000 to secure a sale, new research suggests.'

Jeff

There are two ways to make money here so it's extremely unlikely id get both wrong imo.

[superfrank]

http://www.telegraph.co.uk/finance/pers ... 20000.html

Have a read of the comments below that DT article - it's becoming increasingly clear that people are not falling for the mainstream media vested interest rubbish we are constantly fed.

London's Evening Standard makes much of its revenue from its Homes and Property supplement - they have a vested commercial interest in the attractiveness of property as an 'investment'. One should take any of their property 'news' stories with a large pinch of salt. Equally the BBC, who, along with all mainstream media, report rising house prices as good news, are stuffed with overpaid journos with large London mortgages for whom a house price crash would spell financial disaster.

Just imagine rising food or fuel prices being reported as good news - it's madness.

The internet is a wonderful thing as it allows us to view information and opinion outside of the mainstream media that has brainwashed the masses for far too long.

[Euler]

Don't get too hung up with forecasting economic conditions, you may as well be a long range weather man as they are just as accurate!

Just focus on finding good investments, let others worry about what could go wrong.

When I first met Buffett I had to think of something intelligent to talk about so I focused on the financial crisis in the 1970's and asked him what his mindset was then. He basically gave me the above advice. I've learnt from that and was prepared for 1998. Since the most recent financial crisis my portfolio is over three times bigger than before.