"It's not Timing, it's Time" Jan Somers [Archive] - Somersoft Property Investment Forums

Mikhaila

10-07-2004, 11:36 PM

Yes, it is relevant for me, but it is relevant regardless of the climate really. The simplest way to explain why is to point to the compound interest formula:

Total = Principal(i.e. initial investment) * (1+return%)^years

It is crystal clear why time is by far more important than timing. Here is an example:

Lets say the property worth is 100K and Mr & Mrs A keep it for 10 years with the average market return of 5%pa. It includes some +20% and some –10% years. On the other hand Mr & Mrs B decided to time the market and hoping to double the average market return to 10% but keep the property only for 5 years.

100,000 * (1 + 0.05)^10 = 100,000 * 1.63 = 163,000

100,000 * (1 + 0.10)^5 = 100,000 * 1.61 = 161,000

The result seems very close. The key issues is that the first couple didn't have to do anything but just patiently wait. The second couple had to come up with some pretty good ideas to double the market returns. Those who are timing the market is unlikely to keep the property for 5 years as it is usually “way too long to wait”. Hence the time component goes down and to achieve the same result the return must be even better. It means having even more brilliant ideas etc. etc. I am not saying it is impossible but the probability IMO is heavily on the first couple side.

M.

geoffw

11-07-2004, 12:24 AM

I have been re-reading one of Jan's books laterly. Do you think "It's not Timing, it's Time" is still relevant in todays climate??Both are still relevant.

Someone coming into the market now will probably wait for a number of years to get a gain (depending on the area).

In ten years time, the person starting out now will probably not do quite as well as the person who started three years ago.

But that person will be far ahead of the person who was not in the market at all.

That's what "time in the market" means to me.

bicko

11-07-2004, 09:03 AM

One thing that people might over look is

that the mortgage owing does not increase with inflation

so in 20 years time we will be able to pay off our IO loans in

1 month lol

cheers

bicko

bicko

11-07-2004, 09:06 AM

I feel that both timing and time in the market have equal importance.
Buying at the right time might enable an investor to accelerate their
portfolio by gaining quick equity and therefore recycling their startup
capital.

cheers

bicko

willair

11-07-2004, 09:21 AM

I do think in a real time model,if the property is purchased at a sensible price
in the first place,then the investment spring board only will move into future increasing
value cycles, but there is always a cutoff period,then the preceeding cycle starts all over again and that all comes back to projection of the time model,you just have to work out what part of the cycle you are in today..
Good luck
willair..

superted

11-07-2004, 02:02 PM

The timing side for me is important. The person that bought 8-9 months ago has gone backwards to me if i entered the market now in the area I live. That is a lot of capital headstart i will have for waiting.

So for example the $550K house that is now worth around $480K has saved me closer to $140K depeneding on your tax bracket. Also the costs side (stamp duty etc) has reduced somewhat on the lower purchase price.

Takes a lot of time to make that sought of capital even if you are plannignon holding the property for a long time.

Mikhaila

11-07-2004, 02:56 PM

...
Buying at the right time might enable an investor to accelerate their
portfolio by gaining quick equity and therefore recycling their startup
capital.

This is a big difference between “buying at the right time” and “buying right” as I see it. If you buy right there is always the right time to buy. :)

thefirstbruce

12-07-2004, 12:04 PM

Jan Somers' quote is simplistic and conservative.
She is recommending a form of dollar cost averaging, based on the belief that it is impossible to predict property cycles.

A superior strategy to dollar cost averaging would consist of buying no or less property as a property boom plateaus or slows, and progressively buy more property 3 years after the peak of a boom. (based on the assumption that a cycle is on average 7 years).

Further, Jan's quote only considers investing in property. It fails to recognise the opportunity costs of not investing in equities at the right time. It wasn't rocket science to recognise that an underpriced share market might be on the edge of a substantial boom from July-Aug last year when property prices were offering poor yields.

Thanks to not following Jan's advice, and instead buying equities, I am now in a position to buy three properties rather than the one I could have bought back in January this year.

sbe

12-07-2004, 12:05 PM

Bit of both.

Buy at the wrong time and you'll need time in the market, but eventually it will come right.

Buy at the right time, and you can greatly increase your equity rapidly.

Buy at the right time, the right price and hold it - well now there's a strategy....

duncan_m

12-07-2004, 12:12 PM

Jan Somers' quote is simplistic and conservative.
She is recommending a form of dollar cost averaging, based on the belief that it is impossible to predict property cycles.

I think there's probably a few other aspects that drove Jan to adopt the "Time, not timing" approach. Whilst definitely being a recognition that mere mortals can't accurately predict property cycles it ALSO deals with the issues of:

1. Making use of the Bank money when they're willing to lend, ie. there may be no guarantee that the money will be available when you decide the time is right.

2. Overcoming analysis paralysis

3. It robs people of the "Now is not the right time to buy my first investment property" mentality that stops many people ever buying.

Obviously, very experienced investors can do better with their timing.. but lets not forget new people entering the market.. making the process too complicated for them may really cripple their success. After all, even if they didnt pick the right time to buy, their success will eventually be assured if they closely read Jan's book and follow her advice.

Sim

12-07-2004, 12:54 PM

I think Dunc has it right.

Jan's methods will always work given enough time. And time is the key - her plan is a "long term retirement" plan, not a "get rich quick" plan. It's simple, it's safe, and it works (mostly because it's simple and it's safe !).

Sure, you can do more, and do it more quickly, if you take timing and other asset classes into account. But that's not really the point.

thefirstbruce

12-07-2004, 02:51 PM

Hi All,

Have been away for a while, great to be back. Good to see all the old faces here.

I have been re-reading one of Jan's books laterly. Do you think "It's not Timing, it's Time" is still relevant in todays climate??

cheers,

Gordon

Gordon, I agree with Sim that Jan's advice is for the novice passive investor who is young enough to be time rich, and likely to pass through 3 or more booms before 55. We might also add to this list that the investor should have a secure income, which is something many do not have nowadays.

However, Jan also wrote her book when few people invested in property. I wonder now that property investing has been popularised that her strategy needs fine tuning. Certainly the positive cash flow approach was one way to fine tune, but that is difficult to 'passively' walk into nowadays too.

To buy at the peak of a boom compounds the risk associated with job loss, rental yields below other asset classes, interest rate rises, less spending power, and softening prices.

I would love to see Jan develop her ideas (and truisms) so as to keep today's younger generations from falling prey to these added risks.

qaz

12-07-2004, 03:14 PM

Why is it considered riskier to try to time the real estate market than buy whenever you can?. That doesnt make any sense to me. I mean yes you can get it wrong by buying into a market that has just reached its peak, but if you buy straight away because you can your just as likely (if not moreso) to buy at that peak. Unless of coarse the property is positive cashflow in which case you can hold the investment indefinatly and you dont need CG to offset your negative cashflow.

Mikhaila

12-07-2004, 03:35 PM

Gordon, I agree with Sim that Jan's advice is for the novice passive investor who is young enough to be time rich, and likely to pass through 3 or more booms before 55. We might also add to this list that the investor should have a secure income, which is something many do not have nowadays.

However, Jan also wrote her book when few people invested in property. I wonder now that property investing has been popularised that her strategy needs fine tuning. Certainly the positive cash flow approach was one way to fine tune, but that is difficult to 'passively' walk into nowadays too.

I disagree about novice bit. I consider myself above the novice level, but completely fall into the category of “passive” property investor. If “passive” means that one doesn’t trade/seriously renovate properties.

Secure enough income is fundamental requirement of any investment process if you borrow money of course. I can’t see how nowadays is any different from the past. We have the lowest unemployment at the moment (regardless how the government calculates it).

Regarding the popularization of the property investment, IMO give it another 12-24 months (if not less) and you will be surprised how unfashionable it can be.

Qazwsx, buying when you can doesn’t mean buying whatever is available right at the moment you can. It simply means to me if numbers stuck up, I have the ability to buy than I go for it and don’t bother myself if it is top, middle or bottom of the cycle.

Aceyducey

12-07-2004, 05:10 PM

There are many paths to the same destination.

Jan's approach is basic because that's the level most people understand.

Very few people are born as experienced investors.

Give people an easy way to get started. The smart ones will look for ways to improve the system & get there faster, the slow ones will get there in the end anyway.

Cheers,

Aceyducey

Shirley

12-07-2004, 05:24 PM

"So for example the $550K house that is now worth around $480K has saved me closer to $140K depeneding on your tax bracket. Also the costs side (stamp duty etc) has reduced somewhat on the lower purchase price."

Ted - have houses really decreased that much in your area? I'm in Townsville and overall, prices have not dropped yet. Things still appear to be selling quite fast.

Shirley

Thommo

12-07-2004, 06:04 PM

"It's not Timing, it's Time" is a fraud!

Let's also try:
"Hard work never hurt anybody" ..... by those who've never had a callous in their life.
"Money does not buy happiness" ....... by rich *******s protecting their patch.
"Your health is all that matters" ....... by abovementioned rich b's as they steadily drink, smoke and eat themselves into an early grave while insisting you front work.
"It's OK, we love each other". .....NC
"It's the thought that counts" ......by every cheepskate who ever walked this earth.

If you genuinely feel "It's not Timing, it's Time" then you should be investing by salary sacrafice into super because it is the simplist, most tax effective investment on offer.

So you are investing in RE? If you believe you can do better than average (accross the board, compared to investors in all the other investment catagories, and there are many)then, by definition you are "timing the market".

Admit it!!!! If you are an active invester, you are a punter.

Bye! from another punter ...... Bill

Did I forget "Trust me I'm a doctor"?

Sim

12-07-2004, 06:14 PM

I agree with Sim that Jan's advice is for the novice passive investor

Actually, that's not what I said. I said her strategy is "simple", I didn't say if was "for the novice". I know I'm being pedantic, but by saying it is "for the novice" implies that it is not suitable for more experienced investors. In fact, if you follow Jan's strategies, I suggest that you will become quite an experienced investor over the course of a few short years.

Yes, it is a suitable strategy for novice investors, but my point is, don't preclude the strategy for investors who have already been around the block a few times. Maximising wealth in the shortest space of time is not necessarily everyone's aim !

One of my biggest weaknesses is a tendancy to "overengineer" solutions to problems. In almost all cases, a simple solution works just as effectively, and quite possibly more effectively than a convoluted or complex solution.

Don't dismiss simplicity !

However, Jan also wrote her book when few people invested in property. I wonder now that property investing has been popularised that her strategy needs fine tuning. Certainly the positive cash flow approach was one way to fine tune, but that is difficult to 'passively' walk into nowadays too.

I actually disagree that property investing has been "popularised". Well, naturally we have been in a boom and every man and his dog is into it right now, but I suggest you wait a few years and see how many people are keen real estate investors then. Property is definitely out of favour with the masses right now - and I suspect it will continue to be so for a while unless interest rates drop again suddenly.

People (the masses) will continue to buy and sell property - their PPORs, but they will not run out and buy real estate for investment purposes while there is such negativity towards it right now.

Just my opinions !

XBenX

12-07-2004, 06:47 PM

I feel it is still valid in the context it was used, I think a few people are using the quote to apply to situations where it was not intended to be relevant.

We all know that property isnt always the best asset class to be in, at different times in the economic cycle different asset classes will give better returns.

I think the quote is more about taking action than anything else.

schnugg

12-07-2004, 08:41 PM

What if you have a choice of giving thousands to the ATO or thousands towards a property? It's a dilemma I am in - do you buy even if it's expensive because otherwise your money will go to ATO and you have nothing?

Schnugg

Mikhaila

12-07-2004, 09:00 PM

....
One of my biggest weaknesses is a tendancy to "overengineer" solutions to problems. In almost all cases, a simple solution works just as effectively, and quite possibly more effectively than a convoluted or complex solution.

Don't dismiss simplicity !
....

Completely agree. I’ve learnt form experience if it sounds/looks complex and convoluted there is 95% chance it is wrong or at very least not the best possible solution (I am a software engineer). Also, I observed amazing people’s behaviour to over-complicate, unnecessary improve already good recipes and fix something that is not broken not only in IT but almost in every area including RE investing and especially share trading. I am guilty myself, but fortunately with years things are getting better.

As Sim said – Don’t dismiss simplicity!

Bill.L

13-07-2004, 01:30 AM

Hi all,

So it's timing not time according to some!! Lets see if we can put some of it into perspective.

If you had bought an average property at the very height of the last boom(1990 Melb) and held it to this day, you would have a compound growth of a bit over 6% pa.

Lets say you are a smart timer and held off buying at the peak of the last boom. By 1994 you are saying to yourself how smart you are as you didn't buy any property. By 1997 there is a small rise in prices, but being the canny investor you know that as soon as interest rates rise again property will again stagnate(besides the asian crisis is only just biting and the stockmarket is extremely volatile). By '98-99 you just know that y2k could cause a meltdown, then later we have the gst.

So when was the best time to buy?? How did you know?? Obviously the poor punter who bought at the peak of the last boom(WHEN THEY COULD AFFORD IT), paid down the loan, refinanced at cheaper interest rates, bought again in the mid 90's, paid down the loan, refinanced at lower interest rates, bought again in the late 90's, paid down the loan...
Well they must be just suffering from all those properties, if only they had timed the market!!
If you think Jan's plan is for the novice I suggest you go and read the book again, to see the true brilliance of the simplicity.

bye

superted

13-07-2004, 11:44 AM

Bill hindsight is a beautifull thing.

Anyone could pick a point in time thats suits their view and run with it and be totally correct based on that time frame used in their example ;-)

Thats why I chose the present time period including the last 9 months when it was blatanetly obvious of a strong uptrend ending/ peak) plus I can remember that far back and its relevant now.

Acey's post summed it up....

thefirstbruce

13-07-2004, 12:11 PM

So when was the best time to buy?? How did you know?? Obviously the poor punter who bought at the peak of the last boom(WHEN THEY COULD AFFORD IT), paid down the loan, refinanced at cheaper interest rates, bought again in the mid 90's, paid down the loan, refinanced at lower interest rates, bought again in the late 90's, paid down the loan...
Well they must be just suffering from all those properties, if only they had timed the market!!
If you think Jan's plan is for the novice I suggest you go and read the book again, to see the true brilliance of the simplicity.

bye

Hi Bill,
A bit hard to pay down the loan if it is interest only. And if P&I, review how much principal you eat into within the first 5 years.

You correctly state that it is hard to pick the top of a boom. However, relative yield is a good start.

There is also a limit to how negatively geared most of us can be. And many have been stung by negative gearing and poor cg when an interest rate rise comes along, or job loss, or divorce. These things aren't cool topics on a pro property forum, but they happen. My point is that negative gearing isn't the best strategy out there. And buying at the top of the boom often means negative gearing for longer and deeper.

Bill.L

13-07-2004, 12:27 PM

Hi all,

Ted, you have got to be kidding....

" Anyone could pick a point in time thats suits their view .... blah blah blah"

I deliberately picked the worst possible time to highlight my example, not the best time!!

You obviously don't understand what Jan has written, nor have you bothered to reread it.

Bruce, There were not many +ve cashflow properties in the 80's due to high interest rates, but investors who followed Jan's plan back then seem to have done allright. You have also missed part of the real magic of the strategy, as presented in the book.

bye

Corsa

13-07-2004, 02:57 PM

I actually disagree that property investing has been "popularised". Well, naturally we have been in a boom and every man and his dog is into it right now, but I suggest you wait a few years and see how many people are keen real estate investors then. Property is definitely out of favour with the masses right now - and I suspect it will continue to be so for a while unless interest rates drop again suddenly.

I agree with this. I continue to do my own random polls around the office, friends and family and all talk about the bubble bursting and that they wont consider investing in property. The ones who have say one PPOR and one IP see the IP as a "money taker", they are so negative geared they find it hard to see the benefits and may sell for that reason. I dont think investing has been popular over the past 5 years during the boom and I dont think it is popular now. I think there are many fence sitters who talk like they are experts on economics and trying to pick a peak and trough and it just isnt that easy.

Anyone could pick a point in time thats suits their view and run with it and be totally correct based on that time frame used in their example ;-)

Bill, I am trying to understand your point of view...are you saying that it is timing or time or both? From my point of view, I think it is a little of both but mostly time.

I thought SuperTed was saying that basically anytime was suitable which is my sentiment as well. I think trying to pick market peaks and troughs is too difficult and basically just time in the market should afford the investor sufficient benefits of "dollar cost averaging" except with property. Depending on what your threshold is for either negative, neutral or positive gearing, work out what you can hold and hold it. I dont have Jans book with me right now, but she advocates buying say one property a year or a property whenever you can afford it and then have a suitable period of time (and sufficient capital growth) sell a couple to pay down debt and then live off the rest.

Can you clarify what your opinion is, I would really appreciate that.

Thanks

Kind regards

Corsa

thefirstbruce

13-07-2004, 04:53 PM

Bruce, There were not many +ve cashflow properties in the 80's due to high interest rates, but investors who followed Jan's plan back then seem to have done allright. You have also missed part of the real magic of the strategy, as presented in the book.

Bill, those who could buy in the high interest rate days were cashed up.
As I inferred, negative gearing has a low ceiling for most of us. High interest rates, or low yield (as at the top of a boom) make that ceiling lower.

Corsa, you don't have to accurately pick peaks and troughs to do better than dollar cost averaging. Simply comparing yields to other asset classes gives a big head start. You can be assured that most IPs yielding less than 3.5% today are not going to demand higher prices that would drop this yield. You can fool some of the investors some of the time, but not all of the investors all of the time.

Corsa

13-07-2004, 05:00 PM

Corsa, you don't have to accurately pick peaks and troughs to do better than dollar cost averaging. Simply comparing yields to other asset classes gives a big head start. You can be assured that most IPs yielding less than 3.5% today are not going to demand higher prices that would drop this yield. You can fool some of the investors some of the time, but not all of the investors all of the time.

Hi Bruce

I think that is what I said, you shouldnt have to pick peaks and troughs to do better than just investing periodically over time.

So essentially "timing the market" is not as important as "time".

I think we are on the same page though :)

Cheers

Corsa

Bill.L

14-07-2004, 02:17 AM

Hi all,

I obviously haven't made myself clear enough.

I am a fan of Jan's method of time in the market as proposed in the book "More Wealth from Residential Property".

But there is more to it than just buying and holding, it's in the book!!

With apologies to Jan, the quick summary goes as follows.
1/ Save deposit, buy PPOR.
2/ Accelerate payments to pay off loan in short period of time.
3/ Buy IP (when you can afford it!!)while continuing to pay same % of wage off loans.
HINT HINT HINT "If you have paid off your PPOR, guess which loan now gets paid off!!!"
4/ Buy further IP (when you can afford it!!!). Keep putting in % of your wage to reduce debt.

If prices go nowhere for 5 years, your equity has still increased by reducing your loans. Eventually even with stagnant prices, due to inflation, rents will rise and so will your wage. The property/ies will become/go even further cashflow positive. You will then be able to purchase further property as you can afford it.

The only timing involved is when you can afford it!!

Bruce,
There were plenty of people who bought in the high interest days of the 80's, and they -ve geared(when the govt allowed). You would get an 6-8% yield(average city house) when rates were 13-14%(and that was before the boom at the end of the decade).

bye

Thommo

14-07-2004, 06:01 AM

It's obvious really, but the reason you invest has a major influence on whether you believe in time or timing.

If you are on a good salary and the banks are eager to lend to you why not invest other peoples money? You are farming the tax deductions so time is all that matters.

Others, including the self employed, often don't have a tax problem (unless not paying enough is a problem) so they must examine all their investments more critically. As a buisnessman I do this automatically and have the option of a tax effective investment in my own enterprise anyway, so I want positive cash-flow from day one. Such cash-flow is not available in safe markets now so I choose not to buy property now ie I'm attempting to time the market.

Thommo

DOC

14-07-2004, 08:54 AM

Hi Everyone.
I haven't re-read Jan's book because I lent it someone who I have lost contact with and haven't yet bought another copy. I can't remember, was Jan's "It's not Timing, its Time" strategy based on a 'buy & hold' strategy? Because based on my limited experience with doing a 'reno to sell' compared with 'buying to hold', the timing was more crucial when having to take into account the time period between the point of purchase and sale. I found timing crucial for the reno and advantageous for the buy and hold(but not as critical to wealth creation).
When looking at it from my experience (which I must stress is limited) the validity of the "Its time in the market and not tming the market" largely depend on the strategy, one is wanting to employ.

Cheers,
DOC.

thefirstbruce

15-07-2004, 11:16 PM

From the comments so far, it seems we are all focusing on entry.
Does anyone think timing might be more pertinent for exit?

geoffw

15-07-2004, 11:34 PM

From the comments so far, it seems we are all focusing on entry.
Does anyone think timing might be more pertinent for exit?For many of us who are "buy and hold", an exit is a rare event.

But it is something which happens.

Either-
.A property does not perform (and does not look like performing)
.A property performs so well you're much better off selling now
.Or, the profit from a sale can help to go from a small deal to a big deal (as in Cashflow)

see_change

15-07-2004, 11:42 PM

From the comments so far, it seems we are all focusing on entry.
Does anyone think timing might be more pertinent for exit?

I think if you're into timing , then both are important.

Obviously the reason for timing , is that you think there is a time where you can optimise your returns in property , and then when the market goes to sleep , you can put the money to better use elsewhere.

Obviously you can draw down your equity , but that relies on increasng debt , and that is something that some people are not comfortable with.

See Change