Bubble Bubble Toil and Trouble.

From: See Change


Having watched the previous property boom from the sidelines I'm interested in the number about the commentators who use the label " Bubble " in relation to the current increase in property prices. From my relatively uninformed position the current changes just represent a normal past of the economic / property cycle.

Prices are said to double every 7-10 years. As I pointed out in a previous post the current cycle has occurred over closer to a 14 year cycle , so if we take that to one possible conclusion , maybe we will see prices quadruple over the current cycle. Personally I don't think that will happen, but who knows.

For me a "Bubble" is a one off event within a particular market. Historically the "Dutch Tulip mania" and the "South Sea Bubble" are the classic examples quoted. But these are historically rare events. Given the use of the term in 2000 in " Tech Bubble ", to start calling the current property boom a "bubble" sounds more like an attempt by the media to increase the sales in their various publications. Even the " Tech Bubble " reminded me of the "Share Boom" that occurred with posiden and seems to be a regular occurrence within the economic cycle rather than a rare , one off event.

So if we’re not in a Property Bubble and I’m claiming the Tech bubble was not a bubble why start raving on about Bubbles. ? There has been one common factor driving the dreams of people aiming to get rich quick and that is Debt.

The article Ross posted raised this and it has been the subject of many previous articles, but these are always opinion pieces that rarely get read by the masses. The use of Debt to make money is an integral part of any wealth plan but many people seem blinded to the thought that the assets they have bought through the uses of Debt may actually go down.

So are we in a Debt Bubble? Probably not . I still think that it’s part of the normal cycle . The market will go up some more and then plateaux . In some areas the market will come down significantly while others will hold their own . Some areas will go up more than others ,and others are already softening. People who have over extended them selves will go bankrupt when they loose their jobs or rates go to 10 % ( let alone 18 %!!) and can’t afford their negatively geared properties. The banks will sell them at mortgagee auctions and because no one is buying, houses that are currently going for 200 k in lethbridge park will be picked up for 150k or less. Houses selling on the north Shore for > 2 mill will be selling in the mid 1 mill range. ( as examples a house selling in pymble for > 1 mill at the peak of the last boom sold for high 600’s in the 93-94 , and houses selling in Lethbridge Park for around 90 –100 at the last peak were selling for 60K four years ago ). This all happened after the last property cycle and will happen again

If you don’t have to sell , it won’t matter but if you do , you’ll be stuffed.

Life goes on. The people who will win are the people who put to use what they’ve learnt in this cycle in the next cycle.

See change

it's better to be guided by your dreams than your fears
 
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Reply: 1
From: Will G


Some random thoughts ...

When a particular investment vehicle(shares, IP's ...) is popular/bubbles 'everyone is doing it' and the price goes up(supply & demand). This is easy to pick because everybody seems to be talking about it, specialist magazines are printed, TV shows are created(Hot Property, Hot Auctions, Hot ????? ...) and software packages are created to make it easier(Share trading & analysis software, property analysis software).

What are the tell tale signs used to determine when an investment vehicle isn't popular ?. This would be the time to pick up some bargains
 
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Reply: 1.1
From: Glenn Mott


American share funds stink at the moment...this is something I have made note to discuss with my financial advisor at our end of financial year review next week.

Glenn
 
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Reply: 1.2
From: Always Learning


Surely we must look at the value of the asset as measured by the income it generates. Bubbles are characterized by the asset massively increasing in price far beyond any reasonable current or future income expectation. eg. Japan's property bubble in the late '80s early '90s. What about ostrich eggs being traded at $10,000 each, or Aloe Vera cactus plants.
 
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Reply: 1.2.1.1
From: Always Learning



From memory there was a small bubble price of Aloe Vera plants with the alternative farming industry when it was "believed" that Aloe Vera would be ticket to riches. People were getting rich off trading (to speculators) not actually growing the plants.
 
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Reply: 1.2.1.1.1
From: Thorpey !


The NASDAQ today hit 5 year lows.
It rests at 1400 something after being quoted at around 5000 something about 18 months ago!
Now that's a burst bubble!

Thorpey!

"Better to have it and not want it, than to want it and not have it"
 
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Reply: 1.2.1.1.1.1
From: Alan Hill


Yes, that's interesting isn't it Thorpey!, I was just checking it myself.

Soooo..... as the majority seem to agree that you don't buy asset classes at their peak(such as TOO much property within the last 6 months), how many of the Forum are currently using this time to move SOME of their equity from Property into Shares(or other)?

Share prices do seem to 'stink' at the moment don't they? Falls in the Dow of over a 100 a day seem to be quite regular at present.

In general conversation within the last few days, I've had a couple of people say to me what a terrible investment shares are. "Look, they're at 4 and 5 year lows!"

Hmmmm......might be 'shopping time' after all.



:)
 
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Reply: 1.2.1.1.1.1.1
From: Felicity W.


I just thought I should point out that it's only American shares that are plumbing the depths,in particular tech shares.
The Australian sharemarket, although not at its highest point, is certainly not in a major downtrend (yet!). It can still fall a long way from where it is in order to match the falls in most overseas markets over the last year or so.
Keep smiling
Felicity :cool:
 
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Reply: 1.2.1.1.1.1.1.1
From: See Change


Felicity , one reason the australian market hasn't fallen c/w with the American market , is that the US went up considerably more than we did over the 90's.

Haven't looked at a share chart for a while ( about to correct that ) but I wouldn't be surprised if the US is just pulling back to it's Long term up trend.

see change


it's better to be guided by your dreams than your fears
 
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Reply: 1.2.1.1.1.1.1.1.1
From: Phillip Jacovelli


Hate to be a stick in the mud, but don't forget guys, that our humble $ has taken a battering in recent years! From memory, three years ago it was sitting mid 70's.

So how have our property and share portfolio's performed in global terms?

Hmmmmmmmmmmm!

PJ
 
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Reply: 2
From: The Wife


Forgive me for not being able to quote the names of any bubbles. However I lost a lot of money once in what someone called a 'bust', I presume this was the bursting of a bubble? who cares, it really really hurt, I didnt like it, I learnt, now I practice......

"If you don’t have to sell , it won’t matter but if you do , you’ll be stuffed"

well said SC, to me, this is one of the keys of good investing. Another key is, not to be so tortured if you loose a lot of money, its only money after all.



TW
~Still a little bit tortured~
 
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Anonymous

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Reply: 2.1
From: Anonymous


Um...

maybe I'm missing the point but I thought the idea was to make money, not lose it? Isn't that why we're on this Forum?
 
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Reply: 2.2
From: Jakk Bass - The SLUM LORD


G'Day All,

Twas sometime in late 1989 when I realised that things weren't as good as they'd been about 6 months earlier. I was a young (well, younger than I am now anyway) real estate agent that had made an absolute bundle of money ( an obscene amount actually), in the previous 3 years or so. That money I had directed to property investment, negatively geared houses, sub divisional land and some commercial property. At the time I thought that there was to be a levelling out effect and also thought that I would ride it out.
How wrong I was. By late 1990 I had practically lost everything. I recall paying 21.25% interest on the development finance for one of the land subdivisions we had in progress, quite normal back then as housing rates had reached about 18%...(ahh memories).
The Bubble had definitely burst.
At the time I thought I was finished, a loser, I'd had a dip and had come out much the worse for wear.
It took me about 3 years to dust myself off, pick myself up and start over.
Financially I was CACTUS, Mentally I was STUFFED.
The lessons learnt will stay with me a lifetime. (they do say that education costs).
Yes I have rebuilt to a greater height than before, but this time with a much more cautious attitude.
There is a BUBBLE and It will definitely BURST, but who knows when and to what degree.
My advice to all, BE PREPARED and be financially able to weather the storm, do not over extend yourself.

but then again who am I to tell anyone what to do?
I am just a SLUM LORD

regards
Jakk
 
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Reply: 2.3
From: Always Learning


I have a quote from Brian Tracy:<p>

<quote> The long term view sharpens the short term view.</quote>

<p>Would I own this property for 20 years or more?

<p>Same with stocks, before buying it is suggested that you should ask yourself "Am I prepared to hold this stock for the long term"?

<p>We should contrast this type of thinking to those who take the short term view, share speculation, using deposit bonds on multiple OTP apartments for which they have no hope to settle personally.

<p> Naturally taking the long term view is not the only way, is perfectly possible to make big profits speculating. However there is much evidence that those who take the long term view, delay gratification, build for the future, do the dull and deadly boring stuff that others don't have a much greater chance of success over the long term.
 
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Reply: 2.3.1
From: See Change


Anon

In "The Millionaire next Door" one of the take home messages is the importance of having a "good defence ". In the book this is in terms of not spending more than you need to on daily expenses. This also applies to protecting you assets by having a good defence.

Having a good defence isn't necessary for " making money " but it is vital in " Wealth Building " and that's what I'm interested in.

see change


it's better to be guided by your dreams than your fears
 
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Anonymous

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Reply: 2.3.1.1
From: Anonymous


SC,

I totally agree with you about having good defences which is what I have by spreading the risk and a Plan B (& a Plan C etc), but the purpose of my wealth building is to benefit from the green folding stuff later on i.e. making 'long term' money.

I was just a bit startled about TW saying not to be too tortured about losing not only money, but 'a lot of money', as it is only money after all. I lost not only a lot of money but the damn whole lot, home and all, a few years ago and I don't want to be there again - please believe me when I tell you it is not a very pleasant situation to be in.

Anybody out there know what I mean?
 
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Sim

Administrator
Reply: 2.3.1.1.1
From: Sim' Hampel


On 7/3/02 4:54:00 PM, Anonymous wrote:
>
>I was just a bit startled
>about TW saying not to be too
>tortured about losing not only
>money, but 'a lot of money',
>as it is only money after all.
>I lost not only a lot of money
>but the damn whole lot, home
>and all, a few years ago and I
>don't want to be there again -
>please believe me when I tell
>you it is not a very pleasant
>situation to be in.

Are we maybe seeing the difference between someone who had something and lost it... and someone who had nothing, made something and then lost it ?

When you start with nothing, making then losing something is not quite as scary.

 
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Reply: 2.3.1.1.1.1
From: See Change


Anon

I think the other thing that TW was alluding to ( I assume ) is that there are more important things in life.

Compared with you Health , Family and Friends

Money is UNIMPORTANT

See change

it's better to be guided by your dreams than your fears
 
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Anonymous

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Reply: 2.3.1.1.1.1.1
From: Anonymous


I really can't subscribe to this 'guilt' thing about being wealthy or having money, like it's all a big sin. Bollox.

I had nothing, made it and then lost it and being without it, having had it, is worse than never having had it at all.

I am pleased to say that I have a happy healthy family and good friends. We would, however, all be a lot happier and could do much more for ourselves and others if we had $$$.

As so many people have said, poverty helps no-one - money helps many. If money is unimportant, why are you trying to make some?

(Err - we're a bit off topic, aren't we? It's been fun, though. Thanks. I might crank up another posting on this subject just to get some grey matter moving. Watch this space.)
 
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