All is well until tommorows online article

[HomeBuyerStrike]

in your case you might make more $ by completing your PH.D in Quantitative Methods, writing a book on probability theory and having it published.

Believe me I've better things to do. Just dropping in here to get a gauge on the psyche while I have some time to kill, as I have said on another thread.

There's actually some very interesting points from some posters that I might look into further though. That's the law of unintended consequences I guess.

 

[dan c]

This may shock you, but how you interpret my posts or any thoughts you have in relation to my posts do not represent my posts. To claim such is a straw man argument. .

OK, for the fourth time, I haven't misrepresented your position. You saying I am making a straw man argument, is itself a straw man argument.

It said that you asses risks, prioritise them and deal with high, medium and potentially some lows.

Low probabability, massive impact event would probably indicate low risk. Up to the individual whether they include it. Congratulations on addressing the pertinent issue btw. The world has not collapsed on itself as a result.

Thanks. I would argue that most risks are low, and some are not worth bothering about. Insurance and research can mitigate a lot of the risk. But as you have said, no investment is risk free.

I've answered it comprehensively, if the explanation is insufficient for you then that is you issue, I cannot help any more.

Here's your answer:

I said it was the total liability in an extreme situation, given the likelihood of these extreme events are very low the truth is somewhere between here and near infinite profit. The probability of either event is greater than zero. Hence your assertion that an example is necessary is false.

Bill was asking for an example of such a situation, which would appear on your risk matrix, and you haven't given one. You haven't answered the question at all.

 

[HomeBuyerStrike]

Bill was asking for an example of such a situation, which would appear on your risk matrix, and you haven't given one. You haven't answered the question at all.

Bill asked for a concrete example that has happened in the past. I never argued there was one. If Bill had asked for a hypothetical one then there have been plenty mentioned on the thread. Why is it necessary for me to reiterate those? Unless you absolutely believe the probability of total loss is zero then there is no point of contention here.

 

[tom32]

(by the look of it Tom32 might!)

No, believe it or not I hate statistics and hated them at uni. Have to use them on occasion but they are a tool which I actually spend little time thinking about till moments like this. I certainly would not prescribe for myself any more learning than that which was covered in my undergraduate engineering degree.

Nonetheless people talk about risk / return etc but the statistical method behind calculating this if you have a data set which gives you a standard deviation for the investment is not that tricky.

You can actually just plug a set of data into excell, then grab them and use the standard deviation function and then you have it.

You can then use a confidence interval to find what the certainty of a future price or less might be. It is not that difficult but the hard part is having data you can rely on. The money is not in the maths it is in the knowledge of what is actually going on in the world and what is going to change and why.

 

[HomeBuyerStrike]

Could you please identify one case of a property in an urban area of Australia, of the typical mum and dad investment, that has gone to $0 in 'worth'? That is what is needed to make your above statement correct.

There are plenty of cases where banks have foreclosed, yet realistically the total loss on the property for the purchaser is the value of their deposit and costs, $62,000 in this case.

Before you engage in further brow beating danc you might like to read again Bill's exact question quoted above.

 

[tcocaro]

So in a single paragraph can you please tell me the view or point you are trying to make? Because you have posted so much in such a short span I have literally lost the point of pretty much all your posts. Is it that there are risks to investing which includes property? That there are alternate or even better investments out there?

Because if this is the underlying point you are trying to make then thank you captain obvious but we already know this.

The problem is (i suspect) that you hold a view that "we" dont beleive there is risk or alternate investments and we blindly follow property like sheep... or more likely you beleive we are all blind bulls who have signed up to the thoery that the skies the limit for prices.. Unfortunately if this is the case then this is more a problem you have with you own pre-conceived conceptions on both property and the players involved.

Believe me I've better things to do. Just dropping in here to get a gauge on the psyche while I have some time to kill, as I have said on another thread.

There's actually some very interesting points from some posters that I might look into further though. That's the law of unintended consequences I guess.

 

[HomeBuyerStrike]

In the prevailing conditions the positive and negative risks of property investment opportunities in the markets where the overwhelming majority of people want to live make the opportunity less attractive than alternative investments. For illustrative purposes I have chosen to show that even a demand deposit with it's low positive risks represents a superior opportunity than the aforementioned property investment opportunities. Also, leverage increases negative risks in direct proportion to positive risks. I think the points about risk management including assessment and mitigation are minor tangents.

So in a single paragraph can you please tell me the view or point you are trying to make?

I think you're right, enlightened investors would have no problem with this statement. In fact I've been surprised to see it mentioned several times here over recent days, although phrased differently.

I don't believe that all property investors are blind sheep, I believe that very many are though. This is probably evidenced by the ATO statistics regarding turnover of investors in the market.

Property investment is a lot harder than the main stream media imply or how popular opinion would suggest.

 

[MichaelW]

In the prevailing conditions the positive and negative risks of property investment opportunities in the markets where the overwhelming majority of people want to live make the opportunity less attractive than alternative investments. For illustrative purposes I have chosen to show that even a demand deposit with it's low positive risks represents a superior opportunity than the aforementioned property investment opportunities.

G'Day mate,

OK, got it. But of course I disagree completely as you'd expect. In my mind it all comes down to that first part of your statement. The bit about "prevailing conditions" for the "property investment opportunities", because if we assume "normal conditions" then, as demonstrated mathematically in earlier posts, property is clearly a superior investment than money in the bank.

So, what you're really arguing is the Beta. You're suggesting in the current market the property Beta has increased significantly and the reward does not warrant the increased risk.

That's your right, and an argument hard to refute as its almost impossible to mount a truly objective case about the current property market conditions. Invariably it comes down to a subjective matter of opinion. But, as you know, my opinion is firmly of the view that the current property investment market is one of the best in about a decade in Sydney at least. I look to the macro economic drivers for Australia and can't help but see positive developments over the coming decade. To me, this presages a very positive property market over the same time period.

In my mind, the property beta is unchanged and the economic cycle is alive and well. There's been others before you who have argued the end of the economic cycle and history has always argued against them.

But, to each their own opinion. All the very best.

Cheers,
Michael

 

[lizzie]

For illustrative purposes I have chosen to show that even a demand deposit with it's low positive risks represents a superior opportunity than the aforementioned property investment opportunities.

and then several of us have shown that the above statement is incorrect by calculating in the use of leverage. of which you agreed.

- this put you back into arguing about risk of losing 100% with property.

which several of us then showed that, with due diligance and insurances, this is not a risk any more than a bank deposit. of which you agreed.

- this put you back into arguing about australia vs other countries.

which we refused to debate because it's been done to death in the past. of which you agreed.

- this put you back into arguing about straw men and hypothetical examples

the rest of us are talking about real life. no need to be hypothetical in a realistic existance. of which you agreed (to some degree by acknowleging you were only being hypothetical).

so - you are arguing and then agreeing and then bringing up the "next item" to argue about and then agreeing. i don't get what point you are trying to make, assuming there is one.

maybe i'm just a simple-minded and moderately successful property investor (despite my - er - learning experiences).

 

[dan c]

For illustrative purposes I have chosen to show that even a demand deposit with it's low positive risks represents a superior opportunity than the aforementioned property investment opportunities.

No you haven't. According to your tolerance of risk and future forecasts, which are subjective, you believe your money is better off in a TD.

Fine, that's your opinion. I'm not here to convince you otherwise.

I just think most of the risks can be mitigated through insurance and research, and the positives generally outweigh the negatives.

This is, of course, just my opinion.

 

[HomeBuyerStrike]

and then several of us have shown that the above statement is incorrect by calculating in the use of leverage. of which you agreed.

I'm not sure where you're taking that from. I've said that leverage increases negative risk in direct proportion to positive risk.

which several of us then showed that, with due diligance and insurances, this is not a risk any more than a bank deposit. of which you agreed.

Whoah! They're not directly comparable and no where have I suggested they are.

- this put you back into arguing about straw men

Your post is a perfect example. You've distorted my points and responded to these new distorted points which have a tenuous link to my own.

the rest of us are talking about real life. no need to be hypothetical in a realistic existance.

In the future everything is a hypothetical.

Anyway, it's time to go enjoy some socialising and lighter topics than economics. Enjoy your evenings.

 

[HomeBuyerStrike]

No you haven't. According to your tolerance of risk and future forecasts, which are subjective, you believe your money is better off in a TD.

Important point before I go, there is a big difference between a term deposit and a demand deposit. It might be too boring for some here but I'll point it out anyway. A demand deposit is lower risk because it has lower/no exit costs. Hence why term deposits should yield higher returns to make them attractive.

 

[tom32]

Important point before I go, there is a big difference between a term deposit and a demand deposit. It might be too boring for some here but I'll point it out anyway. A demand deposit is lower risk because it has lower/no exit costs. Hence why term deposits should yield higher returns to make them attractive.

The stupid part is a term deposit does not even pay more than an at call deposit at present anyway.

Went through every option with combank the other day as my FHSA is going to mature soon they were talking to me about a home loan and asking what other funds I had. When I said we (my wife and I) had them in U bank they suggested it might be better if we moved them over for the application process and did it now then they would not have to piece it together with account statements etc.

When I said eligibility should not be an issue being older than the average FHB'r they still transferred me to the savings expert who said the best he could do was 5% and proceeded to explain why small banks could offer better rates but had more risk. I told him this is the moral hazard presented to us by the government guarantee. Why bank with the safest when the risk is the same or nearly the same for all.

Taking my stats hat off who cares about risk when your deposit is guaranteed by the Australian government. Just chase the highest possible return.

 

[Aaron Sice]

 

[Ajax]

So people,

should I use $50k to buy a new car or buy a property for $250k (requiring $50k deposit and $12k s/d and legals)? I have sufficient funds in line of credit (as a buffer). Talk to me before I bite the bullet on a doo-dad.

I'm feeling like accessing some delayed gratification at this point.

My view of where the property market is headed is not as rosey as others. I think we will only have moderate capital growth (and no growth in some areas) at some point over the next 5 years. I'm not too bullish on my IP in Darwin. A little more positive on my IP's in Sydney (Redfern and Auburn). My residex research has some properties in Hobat and Launceston as suggestions. They are cheap compared with other cities.

I say this because I think that the economies of all countries are inter-linked. If US economy double dips, and Europe economy falls (Buffett is calling a short on the euro), then surely China's growth must be curtailed at some point, and therefore Australia. At the moment (particulalry today) commodity prices are soaring-gold, copper, sugar, tin, wheat etc are all at/near record highs. I can't see it lasting forever.

Also am bemused by the reponse to the rising $Aust. It is not good news for our exporters. Am seeing people trying to buy $US (particlarly in last few days)...as they think it won't last. I think it could last...but a high Aust$ is bad for our economy and a way for countries (whose currencies are being devalued) to shift their economic malaise onto Australia. Short term we'll have good o/s holidays, cheap tv sets...long term some export industries will be crushed, some import competing industries will be crushed and we may have rapidly rising unemployment.

 

[tom32]

So people,

should I use $50k to buy a new car or buy a property for $250k (requiring $50k deposit and $12k s/d and legals)? I have sufficient funds in line of credit (as a buffer). Talk to me before I bite the bullet on a doo-dad.

I'm feeling like accessing some delayed gratification at this point.

Well unless the car is a truck and it is going to provide you with income in some way then as an investment no I cannot see how it is going to be better.

My view of where the property market is headed is not as rosey as others. I think we will only have moderate capital growth (and no growth in some areas) at some point over the next 5 years. I'm not too bullish on my IP in Darwin. A little more positive on my IP's in Sydney (Redfern and Auburn). My residex research has some properties in Hobat and Launceston as suggestions. They are cheap compared with other cities.

I say this because I think that the economies of all countries are inter-linked. If US economy double dips, and Europe economy falls (Buffett is calling a short on the euro), then surely China's growth must be curtailed at some point, and therefore Australia. At the moment (particulalry today) commodity prices are soaring-gold, copper, sugar, tin, wheat etc are all at/near record highs. I can't see it lasting forever.

Well thats the commodities cycle prices rise capacity builds prices fall capacity retreats slowly till prices rise and capacity is built again. Still once the capacity is built in much of it will remain if costs drop the jobs are still there just not in the capacity building part of the mining sector.

Also am bemused by the reponse to the rising $Aust. It is not good news for our exporters. Am seeing people trying to buy $US (particlarly in last few days)...as they think it won't last. I think it could last...but a high Aust$ is bad for our economy and a way for countries (whose currencies are being devalued) to shift their economic malaise onto Australia. Short term we'll have good o/s holidays, cheap tv sets...long term some export industries will be crushed, some import competing industries will be crushed and we may have rapidly rising unemployment.

The Aud is doing the job of the RBA at present its rising is keeping a lid on capacity constraints and inflation. If it falls it will be in response to economic weakness anyway so it may not mean higher rates anyway. If it continues to rise then the RBA may not have to raise rates further because the currency market is doing much of the work for them.

Why would Australia want any more activity then it currently has when their is already speculation monetary policy has to tighten further? I think the high dollar is a blessing for anyone who has a loan.

 

[Deltaberry]

The higher AUD means less profits for mining companies (biggest export market in Perth and Brisbane) and less profits or in fact an entire collapse of the education sector (biggest export market for Sydney and Melbourne).

In other ironic news, not sure why the Union is so upset at 300 redundancies at Monash.

http://www.theage.com.au/national/education/foreign-students-in-retreat-20101013-16k03.html

Surely they knew this was coming when they vote ALP/Greens and:

a) bash Indian students and deny it was racism
b) allow rogue colleges to operate unchecked and leave thousands of students stranded when these colleges collapse
c) blame the students for 'rorting the system so they can get the Australian residency' when these colleges are exposed. If only someone could tell the public that the average millionaire Chinese student could hardly give a damn about the residency status... obviously they'll choose a place that offered it ...why wouldn't they?
d) accuse the students of causing higher house prices because they're bringing money to invest here (me thinks we should ban foreign investment... we might be able to hit 3-digit unemployment, that'd be quite a feat)
e) accuse the students of 'stealing' spots from the average Aussie bloke trying to have a fair go (if only they knew unis don't get enough funding and each overseas student bankrolls the HECs spot of the local student next to him...)

Anyway as usual, less students --> less jobs --> less consumer spending --> lower wages --> less rental demand --> more people unemployed. Looks like Perth and Brisbane will be carrying the country in the next decade until the commodity boom busts. God bless all in Melb and Sydney. 19,000 job losses will be cool... Sux to be an academic in the next 10 years, or living in Melb in any case. But these guys probably deserved most of it.

 

[Bill.L]

Hi all,

HomeBuyerStrike,

You ignore two major risks though:
A) You don't have income to cover the cash loss (possibly easily mitigated for a cost).
B) Maximum liability of $312,000 plus costs (in extreme cases).

Releasing equity is not taking profits because you are still exposed to the market. You can still lose the total purchase price of the property plus costs.

For lack of better argument a few posters have seized on this minor point of triviality and used it as a straw man.

How did the initial assumption of a "major risk" become a "minor point of triviality"??

Can you at least show some consistency in your hypothetical arguments?

I think yourself and Bill might be the slow ones to catch on here.

Ahh, name calling, a very good argumentative approach

How about explaining how only 20% is at risk?

I'll have a go...

The maximum FHB risk is usually the deposit as they do not have a lot of other assets of value, especially for young couples. The upside potential is unlimited, whereas the downside risk is limited to the deposit and costs.

Statistical probability curves are nonsense in the purchase of property to live in. You cannot cater for future rent rises in any models with accuracy, nor model the utility of not being kicked out at a landlords whim.

If you had bothered to use real risks in your arguments, like the possibility of peak oil hitting in the next few years, sending the price of petrol skyrocketing and inflation soaring in a short time span, added to the RBA raising interest rates to extreme levels, having a negative impact on suburban property that relied on cars, then i would have paid much more attention to your arguments.

bye

 

[cloudyday]

I know someone that earns around $400k/year in pure interest income putting money in a savings account/term deposit, he's happy about the low returns. It's a safe investment for him as he's gone through some wild investments. His brother had similar money to play with but he leveraged buying property in his country, prices went wild for a period but the problem with property/shares is you don't know when the turning point is. Well, it crashed, and he lost a huge part of his wealth.

At the end of the day it just depends on your risk appetite.

 

[tcocaro]

ill bet my last dollar that he didn't make the initial capital (4 million in cash or thereabouts to earn that kind of interest) via cash deposit interest.

Sorry but this is a bit of a silly example...

This entire thread has descended into farce to be honest... I cannot even begin to rationalise comparing cash in a deposit account with property investing. They are so far apart in every respect that it makes no sense to compare them...

Its not to say keeping your money in a savings account isn't a sound decision... I would recommend to retires who are thinking of investing to consider such an option given their risk is magnified should they loose any part of their investment.

But if I went to a financial planner and he considered keeping money in a savings account as "an option" I kid you not I would fire him on the spot.

Its a basic economic principal in play here people...

RISK vs REWARD... cash deposit is basically the least risk investment option out there and hence the one that attracts the least reward...

Seriously?!?!? cannot even start to comprehend how this thread got so long.

I know someone that earns around $400k/year in pure interest income putting money in a savings account/term deposit, he's happy about the low returns. It's a safe investment for him as he's gone through some wild investments. His brother had similar money to play with but he leveraged buying property in his country, prices went wild for a period but the problem with property/shares is you don't know when the turning point is. Well, it crashed, and he lost a huge part of his wealth.

At the end of the day it just depends on your risk appetite.