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3. So who should I listen to for property advice?
I believe it’s important to be careful who you listen to and only rely on proven and trusted providers of property market information to give you their long-term perspectives.
Of course, it’s also important to understand everyone else’s opinion on property, but that doesn’t necessarily mean giving them the right to give you advice – so be careful of your family and friends and others who tell you what to do.
Only listen to people who have already achieved what you want to achieve.
The problem is, in investing, a property optimist sounds like a reckless cheerleader, while a pessimist sounds like a sharp mind who has dug past the headlines.
So it’s important to remember that the long-term trend of our property markets has been upward for the last hundred years and this has been interrupted by multiple short-term downturns.
In Australia we seem to have 25 million property experts – everyone has an opinion.
You know what they say about opinions… there like belly buttons; everyone has one but they’re basically useless.
Of course, even the property experts tend to get it wrong despite being armed with all the research available in today’s information age.
The reason is those market movements are far from an exact science.
The fundamentals are easy to monitor.
Things like population growth, supply and demand, employment levels, interest rates, affordability and inflationary pressures.
However, one overriding factor that the experts have difficulty quantifying is investor sentiment.
Currently, investor sentiment is low, in fact, the lowest it’s been for decades, despite the economic fundamentals being quite solid.
Unfortunately even the most rational of us tend to suffer lapses of logic when dealing with money and many of our investment decisions are driven by emotion.
Think about it…
When the media reports falling property prices or an impending housing crash, many investors become scared and sit on the sidelines, believing the end of the property is nigh and things will never improve when, in reality, much of the risk has been removed from the market.
Conversely, when property markets are booming and stories of investors seemingly making large gains overnight abound, people want to jump on the bandwagon and cash in; often at a time when the market is near its peak.
You’ve heard me say it before, as supposedly rational beings, humans tend to act irrationally when it comes to money.
Other emotional traps we experience include becoming overconfident, wishful thinking and ignoring information that conflicts with our current views.
In other words, many investors create their own “reality”, but unfortunately, I’ve come to realise that “the crowd” is always wrong.
When there is a general belief that property values can only keep rising and this spreads through a new generation of investors (as it does each cycle), driven by FOMO (the fear of missing out) they drive property values up even further, perpetuating the belief and helping make it a reality!
Similarly, when “the crowd” believes the real estate market is going to crash, FOBE (the fear of buying early) keeps them out of the market, and their negative sentiment gets reported in the media and the feeds itself.
The property market is too illiquid to play the trends, which means investors should run with the long-term upward trend and not be surprised when the market stalls or flat lines and they should not make any investment decisions based on the last 30 minutes or even the last 30 days of news.
But for reasons I’ve never understood, many people like to hear that the world is going to “break” and our property markets are going to crash.
It seems that for the typical Aussie optimism sounds like a sales pitch, while pessimism sounds like someone trying to help you.
And while that’s sometimes the truth, most of the time, optimism is the correct default setting and the way successful investors think.
In fact, I’ve never come across a rich pessimist.
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