Shares vs Property

[see_change]

Hi Harro

It's been a while since we've had a " good" shares vs property thread , but you know they always are going to come around.

The specifics are a bit like statistics, Lies , damn lies and statistics .

you are never going to convince people on the other side. Been on both sides.

I am happy to do both , though property is the one that has made me Millions

One of my personal observations . Are you familiar with Tech /A ?

He's a technical analysis guy from Adelaide who frequents Share forums , originally StockCentral , then Reefcap and most recently Aussie Stock Forum . He set up system called Tech trader in the early 2000's which was a long term trend following system and supposedly was the longest running profitable system on the net ( anywhere ) where they documented their trades at the time they were making them etc . The underlying code was simple / Fully disclosed and there were many people using the system , so it was a success .
All the threads are still there on Reefcap.

I used to chat to John on a regular basis and met him when he visited Sydney . Nice down to earth guy .

So we have one of the more successfully documented share trsaders on the Australian Share Scene.

Do you know how he makes his money ?

Business and Property . He has a successful Business and has a multimillion dollar property portfolio . For him shares are an intellectual challenge.

During my day job I have met many people who were financially crucified by share investments during the GFC having to change there future plans from travelling the world to basic subsistence.

There are several forumitis who have made money on property only to loose it on Shares ( including posters on this thread )

Yes , they should have been better share traders , but the basics of property investing are simpler than shares and you don't have to checck your property folio on a regular / daily / weekly basis.

Keep on with the shares . I have friends who do well out of shares . They're stock brokers and they're always be happy to help you ( though you'd obviously be using an online broker ...)

Don't expect to convince anyone.

Cliff

 

[wategos]

When you're older and more focused on income and security shares are the way to go, but if younger with a safe income and prepared to take on more risk leveraging up into property can pay off. I do both, but my end goal is shares only.

 

[see_change]

When you're older and more focused on income and security shares are the way to go, but if younger with a safe income and prepared to take on more risk leveraging up into property can pay off. I do both, but my end goal is shares only.

Why ??

Its' the people who were nearing retirement that were the most badly hurt by the exposure to shares in the GFC

Wrong Answer ...

Cliff

 

[wategos]

In most countries sticking with shares through the GFC would see them now much better off than highly leveraged property which was hit much harder and has yet to recover. Australia was a bit of an exception last time, maybe not next. The only ones hit hard in shares were those highly leveraged or who panicked at the bottom, or were over exposed to banks.
Shares in retirement for me, no question.

 

[pinkboy]

Why ??

Its' the people who were nearing retirement that were the most badly hurt by the exposure to speculative and poor amount of core company shares in the GFC

Wrong Answer ...

Cliff

Fixed that for you!

Tend to agree with Watagos after a few months of reading into shares.


pinkboy

 

[devank]

Can anyone explain what 'writing call/put options' is please?

 

[D.T.]

Can anyone explain what 'writing call/put options' is please?

Say you own 1000 shares of xyz worth $20

Writing a call of XYZ at say $22 for say a month, this usually pays X cents per share (called a premium, determined by the market, but is basically a function of likelyhood vs time remaining).

Now if XYZ doesnt reach $22 in that month, then you pocket the premium and walk away and do similar again next month. If it does reach $22 any time during that month, you get "exercised", still pocket the premium but have to buy more XYZ at $22.

The latter is sometimes intended ie if you were wanting to buy more anyway, the premium collected is effectively a slight discount on the purchase total cost.

Obviously the more "out of the money" they are (eg $25 on $20 share) the less chance of exercise, but theyre worth significantly less.

 

[devank]

Who pays you the 'premium'? The company xyz or the trading broker like CommSec??

 

[TPI]

Why ??

Its' the people who were nearing retirement that were the most badly hurt by the exposure to shares in the GFC

Wrong Answer ...

Cliff

If the majority of your investments are in shares just before retirement, and the dividends are only just enough to meet your retirement living expenses, then you are taking on a big market timing risk - ie. what if a GFC happens on or near the day of your retirement?

I think the industry people call it "sequencing risk" or the "retirement risk zone".

That being said, during the GFC share prices fell 50%+, but dividends in a diversified large cap portfolio only fell around 15-20% or so (rough figures).

And many recovered to exceed previous dividend levels within 3 years (around 2011).

People talk about a "permanent loss of capital" in an event like this, but it's not really that permanent - depending on the stocks you held, dividends and share prices in many cases have more than recovered.

If you had held the right stocks and just held on, you may well have been okay in the end.

Further to this, if just before retirement you were heavily leveraged by investing in shares using LOCs from residential property and margin loans, then this is far too risky a strategy to be using for pre-retirees.

So it may not be the case that they were invested in the wrong asset class, but instead in the wrong amounts of that asset class at that stage of their lives, with the wrong types of stocks and investment approach, and with too much borrowings.

 

[D.T.]

Who pays you the 'premium'? The company xyz or the trading broker like CommSec??

The person / institution on the other end of the transaction who thinks its going the other direction

 

[devank]

Lets take an example. BHP is about $38 now. Say you are writing a call at $40.00 for 100 units.
Here are three directions it can go.
1. Goes up to $42.00
2. Stays at $38
3. Drops to $35

What will you end up having at the end of each scenario?

BTW how did you manage to change your user name?

 

[jackbak]

How am I missing the point. Shares do and will continue to outperform property.

That's a very broad statement, a lot of this comes down to the skill investor. Huge gains can be made on both the share and property markets. Juts ask Warren Buffet. Just ask Donald Trump.

I was hoping to be enlightened from this thread as to how property investors make the same gains as can be achieved from the Stock Market. But, all I have read to date is about people who don't own anything except debt. Owning property in my view is when you have the Title Deeds not the lender!

There is plenty of examples on the forum, some people have made gains that you will only dream of, if you want to be 'enlightened' have a look at the Interviews section: http://somersoft.com/forums/forumdisplay.php?f=4

 

[truong]

I tend to agree with Wategos and TPI. Both property and shares have their place in a portfolio but their allocation depends on the stage of your life.

Property is suitable when you're relatively young because it's very lenient on newcomers, doesn't require great sophistication and when leveraged allows you to quickly accumulate equity. It's the weapon of choice for those who start with little capital and experience.

I was mainly in property but over the last 15 years as I got closer to retirement and no longer required leverage, I used the profits made on property to get more and more into shares. I've now sold off most of my properties, and although I can live off the rent of what's left, my main assets are in shares.

Our share portfolio of a dozen different LICs went through the GFC beautifully, I mean, share prices dived but dividends held up pretty well. We held on to them during the GFC and 6 years later values have gone back up and more. Yields have remained very high: at 6-10% including franking credits none of my properties can match it even with the help of NRAS.

So no trading for me, just boring buy and hold of selected low-cost managed funds. I have to add though that during all this time I had enough cash reserve to carry me over any share crash.

Many people have done well in commercial property but in my case CP has been my biggest failure. This type of investment displays the worst features of both shares (volatility) and property (large buy/sell/hold costs and incredibly slow reaction time) and, in my case at least, has got in the habit of becoming vacant for long periods at the worst possible times. My last CP was PITA, sold off after 16 months on the market.

 

[devank]

I mean, share prices dived but dividends held up pretty well. We held on to them during the GFC and 6 years later values have gone back up and more. Yields have remained very high: at 6-10% including franking credits none of my properties can match it even with the help of NRAS.

If you aim is get the dividends then who cares about the volatility in the price as long as they don't hit zero?

 

[The Y-man]

Do banks get competitive on ML's? Like if you shopped around would you be able to get within range? Or is it pretty standard across the board to be x% higher than a home loan and therefore there's no point shopping around...just pick any (for the most part)?

Apparently you can.

The Y-man

 

[sanj]

Christ not this discussion again.

Harro - the share market is a better investment vehicle for some and property suits others better. there is no one right way, people should pick whatever suits them, their investing style and their aptitude the best

 

[truong]

If you aim is get the dividends then who cares about the volatility in the price as long as they don't hit zero?

Yep. More of a concern is the volatility in income.

LICs generally offer steady income whereas for commercial property income can become negative for long periods of time (no rent coming in yet costs to be paid).

It's not easy to get out of this as, by then, the value of the property has probably gone down and you're going to lose even more money if you sell.

 

[pinkboy]

If you aim is get the dividends then who cares about the volatility in the price as long as they don't hit zero?

To an extent:

Drop in Company profits = drop in share price = drop in funds available for dividends.

Buying shares as set and forget type investment, locks you in at that price forever to work out your dividend yield each payment date. Lower you get in, the better the yield. If the share price drops, you dilute both your capital, and your dividend yield.

pinkboy

 

[perthguy]

Christ not this discussion again.

Harro - the share market is a better investment vehicle for some and property suits others better. there is no one right way, people should pick whatever suits them, their investing style and their aptitude the best

I don't understand this concept at all. It is extremely risky to have all capital tied up in one asset class. Shares or property is such a ridiculous question. The question is "how do I sensibly diversify my investment portfolio across a range of asset classes?" A follow on would be to refine some strategies for diversifying investments within those asset classes.

 

[sanj]

I don't understand this concept at all. It is extremely risky to have all capital tied up in one asset class. Shares or property is such a ridiculous question. The question is "how do I sensibly diversify my investment portfolio across a range of asset classes?" A follow on would be to refine some strategies for diversifying investments within those asset classes.

what concept dont you understand? some people are more suited to property. that doesnt mean you cant be vastly diversified within that asset class.

2 extremely wealthy people i know do not own a single share, all their wealth is in businesses and properties but i also know some people who have all of their wealth in shares but do it better than the vast majority of the population.

ultimately what i was getting at is that there is no one right way to do it and fanbois from either asset class explaining why theirs is better do my head in.