Reply: 1.2
From: Sim' Hampel
Hi Mike,
Just a comment regarding shares.
You suggest that shares would be a better option for investment because people understand shares.
I disagree. If you ask people how shares work and how to make money on them, most will answer: "It's easy, just buy when the price goes down and sell when the price goes up, you can't lose !".
To me this shows a fundamental misunderstanding as to WHY share prices move like they do. Buying with such a lack of understanding, especially when backed with "it's okay, if they don't go up, I'll just hold onto them for the long term. You should invest for the long term you know".
This is called the "buy, hold, pray, and sell-if-you-make-a-quick-profit" strategy, which will possibly give you reasonable (but not good) returns over the long term.
Such people get really scared in a market like we have at the moment, which doesn't seem to have any direction, or is tending towards a bear market. Most people wouldn't even know the true definitions of bull and bear markets.
The buy-and-never-sell-and-diversify-diversift-diversify strategy is another example of investing for the immature. Books and publications like "Money" magazine promote this strategy because it should, given sufficient time, provide average returns. "Average investors deserve average returns" is a quote (read in a John Burley book I think) that sums up my feelings in this matter.
You won't see detailed descriptions and instructions for trading warrants, short selling, futures markets, writing options and the like for people in Money magazine, because most people have enough trouble choosing which stock to buy let alone knowing how to maximise return during bull or bear markets.
Ask people about a strategy for choosing stocks and they either practice some black magic over the sharemarket listings in the newspaper, or they spend lots of money reading up about and buying sharemarket analysis software to give them "all the answers". They take the software's advice without understanding the market itself. The software is nothing more than a tool. It doesn't understand the greater economy and certainly can't predict the future for you.
Ask them about "fundamental analysis" and they will tell you that means reading the newspaper every week and downloading a few prospectuses. Ask them who Warren Buffett is and most people will stare blankly at you. Ask them about diversification and they'll tell you "I own Telstra AND Optus, so I'm covered either way !". Ask them about the future and they'll tell you "the share market always goes up". Tell them that there are periods in recent history where the sharemarket has taken up to 7 years to return to new highs after a down period and they'll tell you "things are different these days". Ask them about currency hedging and foreign investment and they'll run a mile.
If your goal is to maximise your investment returns while minimising your risk, I certainly agree that eductation is one of the most important tools irrespective of your choice of investment vehicle. Assuming that people truely understand more about the sharemarket than commercial property investment is more a little foolish of them in my opinion.
One thing I will say, however, to provide a little balance to by rant here, is that given the popularity of sharemarket investing, there is certainly much more information and education around for those people who recognise that they do need to learn something before they dive in. The fact the markets are practically "virtual" and company information and research material is available on the internet means that you can do a lot of your learning relative quickly and easily and from the "comfort of your own home". I certainly don't see lots of books on "Commercial Property Investing for Dummies" in the bookstores ! Heck, I don't even see any "Building Wealth through Commercial Property" seminars on offer !
So if we assume that learning about shares is going to be easier then learning about commercial property, then maybe that is the better way to direct people. But remember that there are many many people in the world who made their fortunes in property before the internet was readily available to the general public. They did not have access to chat forums like this. They did not have access to research data at their fingertips. They did it the old fashioned way... leg work and personal contact !
Don't give up on commercial property. I think the rewards can be well worth the risks.
And once my Telstra 2 shares go back above their offer price I'm going to sell them and by an office block