Is Buy and Hold Still Relevant?

[Tim]

Hi All,

the festive season is upon us and a new year is not far away - time for some reflection perhaps.

I have recently emerged from hibernation (well I have finished a long course of study) and am now reviewing both my portfolio and approach to property investment.

I notice at this interesting time new mantras, investment approaches etc and so would like to ask the diligent crowd on Somersoft:

"Does the mantra of buy and hold still apply?"

Does this still remain the way to go (as per Jan Somer's herself recommended) or are any investors here seriously re-considering if this is still the best way to go?

I know of course "it depends on your objectives" but I want to know what people think for themselves and why?

Cheers,

Tim

 

[alexlee]

I, for one, still think buy and hold works. Why wouldn't it? Buy and hold is just a bet on the property going up long term. Long term, as long as the population increases and economic growth is positive, buy and hold works.

Looking back, the BEST time to buy and hold is just after a period of falling or flat prices, and/or after an economic shock. The Asian crisis, the internet bubble bursting, the recession. As long as you manage your cashflow and have a long enough horizon, and the fundamentals (income and population growth) are positive, buy and hold always works. There might be more profitable (but riskier) methods such as development, but buy and hold is a still a conservative, solid way of building wealth.
Alex

 

[arg821]

Hi All,
I notice at this interesting time new mantras, investment approaches etc and so would like to ask the diligent crowd on Somersoft:

"Does the mantra of buy and hold still apply?"

Does this still remain the way to go (as per Jan Somer's herself recommended) or are any investors here seriously re-considering if this is still the best way to go?

Interesting question, and one which I have asked myself a number of times. I keep coming back to this reality though - if I sell any of them now, I can't go back and re-purchase what I sold. In other words, 6 out of 7 of my IPs are Units/Houses in the Metro areas of capital cities, and are all generating greater than 10% returns on original purchase price.

Thus, you'll understand that if I do sell, yes I get some cash now (and a lot), but if down the track I regret my decision I cannot go back and buy metro properties for 10% or more return.

If a property was a standard metropolitan negatively geared one, then it wouldn't really matter - you could sell - as you could always buy more of them if you changed your mind.

Just my view.

Andrew.

 

[kaf]

Bill Zheng just wrote an interesting comment about "buy and hold"
(http://www.investorsdirect.com.au/newsletters/122006/story1.htm).

By the way I'm not connected to his company nor am I a client of his but I like the way he thinks and explains the finance side of investing.

Cheers

kaf

 

[alexlee]

All Bill talks about is the difference between buy and hold for shares and IPs. The difference being gearing (and hence returns), but it generally assumes buy and hold is a good thing. If you assume rents and property prices grow, buy and hold works. Whether something else is better is a different question.

To put it another way, Tim, why do you think buy and hold is no longer relevant? Do you believe that you will not make decent or positive returns from buy and hold, especially when it comes to IPs? If so, why?
Alex

 

[Simon]

Noone will know for sure.

We can do what history tells us will work or we can try something new.

Not until we can look back and reflect on the performance our our choices will we know for sure.

But I am just stating the bleeding obvious here ....

 

[MarkB]

Buy and holds will always be part of my portfolio, but in the past year I have come to recognise that buying and holding by itself they alone wont allow me to achieve my goals.

The conclusion I have reached is that, for me, a more active approach is called for.

M

 

[MichaelW]

The conclusion I have reached is that, for me, a more active approach is called for.

Congratulations Mark! I look forward to reading of your active investing endeavours henceforth.

My approach is still fundamentally a buy and hold one, but now its extended slightly to a buy-develop-hold one. i.e. As Michael Yardney would put it, I want to buy for wholesale prices then hold. This way I build in my equity and can continue to grow my portfolio even in a flat market. If the market moves upwards then that's all just a big bonus.

Cheers,
Michael.

PS Having said that, I won't know if my strategy is successful until I've put it into place. Still need to finish that first development before I can talk with any authority.

 

[kissfan]

Buy & hold is still applicable to acquire capital growth (over the long term), but something still has to be done in conjunction with just holding I/P's that carry debt.

That may constitute selling down at some stage, or getting access to the equity to possibly invest into something (probably shares/mgd funds) that will (hopefully) give a higher return than interest rates (duh, otherwise it's a fruitless exercise).

When I first ventured into property investing, I thought it was just a matter of acquiring as many I/P's as possible and everything would be sweet, but obviously everytime you purchase another I/P (talking growth I/P's here), all holding costs eat into the previous acquisitions positive returns (if they are indeed positive) and you're back to square one.

So unless you intend on getting to a stage of having enough I/P's (how much is enough?), then trying to pay down loans through rents that increased over the years (and this would still take a long long time), buy and hold only equals part of the puzzle, albeit, the main part.

Just my thoughts anyway.

Regards
Marty

 

[Bloss]

Not a strategy we are thinking of yet, and in fact it sound almost to bizzare to be true,but one we saw on that Mcorp DVD was as your portfolio increases in value, you could borrow against the increase leaving 20% in the bank to make the repayment's and spend the rest on whatever .never actually repaying the principle.

Could this even work?

Bloss

 

[landlubber]

Sometimes I wonder if some of you forumites have ever read (and re-read and then re-read again) Jan's wonderful books. You use her forum for free so have some respect and at least read her books. She communicates this whole issue so well.

Unless you're a Bill Gates or a Warren Buffett ...if you're an ordinary wage earner family man .....Buy and hold (the Jan's way) is the ONLY game in town.

Read the books .

LL
( not related to Jan nor benefitting in any way ..except for following Jan's simple system...)

 

[Bill.L]

Hi all,

Beautifully said landlubber and kudos to you.

It would appear that everyone wants to reinvent the wheel and take greater risk by 'pressing' the issue, however Jan's method can only be improved on if you are prepared to do the work on timing.

Unless we start to have large pullbacks in price (like 20-30% declines) between the booms then buy and hold appears to work well.
Oh, I should add property that virtually pays for itself and has cap growth, in other words what Jan talks about in her books, slightly below median priced housing.

bye

 

[BOO]

Hi landlubber,
I am a buy and hold person.

As for Jan Sommers, first investment book I read, brilliant, but does not provide all the answers.

Buy and hold for me does not mean just purchase a property for the sake of it and hold forever. What/where should we be purchasing, isn't this strategy dependent on CG which is really dependent on purchasing the right property. I dont actually recall that Jan Sommers addressing this.

 

[Bill.L]

Hi all,

Boo, this concept of where cap growth will occur compared to +cashflow properties amuses me. Can you ,or for that matter anyone else, tell me whereabouts in capital cities or large regional centres, there has not been capital growth over the last 12 years??

bye

 

[BOO]

Hi Bill
I have been investing in WA market for last 5 years and have experienced CG, also regional areas, South West of WA which last 12 months some areas 40%+.

Not to mention industrial/commercial prroperties. One of our IIIP doubled within 3 years, 5 km from Perth.

 

[alexlee]

I think Jan's strategy is an absolutely great one for ordinary people to create great wealth. You don't have to be on a high salary, start with lots of money or even make brilliant selections. You just have to buy and hold.

Will some people make more money doing flips, lease options, development, raw land, subdivisions, etc? Of course. Many more will go bankrupt doing so, too. Most ordinary people can't afford that sort of risk.

Is buy and hold still relevant? I think it is very relevant if you're an ordinary person who wants to build wealth for retirement. If you want to become a property mogul doing high-rise developments, then no, buy and hold is not very relevant.

The key point of Jan's buy and hold strategy is that it is a relatively low risk, high return strategy that most ordinary people can do to build wealth.
Alex

 

[alexlee]

Buy and hold for me does not mean just purchase a property for the sake of it and hold forever. What/where should we be purchasing, isn't this strategy dependent on CG which is really dependent on purchasing the right property. I dont actually recall that Jan Sommers addressing this.

That's the beauty of buy and hold. Over a 20 year period (which is far shorter than most people's working lives) I would say EVERY property goes up. Most likely at around the average (8-10%). You might get better gains by buying the 'right' property, but the great thing about res IPs is that you still get average gains if you hold over a long period. Given the gearing involved, even 5% a year will build great wealth.

If you want to jump your returns by finding the 'better' buys, that great. But Jan didn't address it because ORDINARY properties will also go up. You don't have to buy the one with the most potential. Just buy and hold.
Alex

 

[alexlee]

Hi Bill
I have been investing in WA market for last 5 years and have experienced CG, also regional areas, South West of WA which last 12 months some areas 40%+.

Not to mention industrial/commercial prroperties. One of our IIIP doubled within 3 years, 5 km from Perth.

Precisely. Over enough time EVERYTHING goes up (as long as the population and economy are growing). Sure you can do better than the average, but even the average will result in great wealth even if you just buy one ordinary house every couple of years and hold it for 20. Compare this to 'put aside money in your super for 40 years' and I know what I'm choosing.
Alex

 

[BOO]

Alexee
Could not agree with you more.

 

[DrJ]

We have been buy-and-holding for 10 years. We still re-read Jan's books. I think the crux of her method is in the "net worth" aspects. As others have said, if you do nothing, that is exactly what you will have - nothing. Jan points out that your financial well-being is measured in terms of net worth. A buy-and-hold strategy slowly but surely increases your net worth. At any point in time, you do not need to sell anything to prove that your net worth is increasing. When I am about to retire, I will worry about how to convert my greatly increased net worth (achieved through buy-and-hold) into some form of lifestyle-sustaining income. As I watch my net worth increase by at least $250k per year, I mentally compare that situation to the alternative and breathe a huge sigh of relief.

And the end-game? Maybe LOE, maybe sell some IP - don't know yet!!! But, I would rather have the problem of making that decision than the problem of living on the pension!!!