A report in the Irish Times today illustrates the massive appeal of ‘buying low’. It’s been a mantra of brokers for decades; the ‘you can’t lose’ argument that can be so successful at whetting the appetite of those looking for investment returns.
But ‘buying low’ can never replace buying quality, as Warren Buffett advises time and time again.
In the case of the Detroit property portfolio shambles, it would appear that some of the due diligence could have been emotionally driven and not as methodical or robust as it should have been in order protect investors.
Since the peak of 1.8 million people in the 1950’s to just over 700,000 today, Detroit has been bleeding the lifeblood that drives housing values; buyers.
The city has also bled jobs as car manufacturers shifted production to less unionised southern US states and further south into Mexico and north into Canada.
To put that in perspective, US cities where populations have grown have also seen property prices grow in tandem, including metro New York, Boston, San Francisco and Seattle.
This mix of population and employment growth is the lifeblood of investment success. To grow property prices, one must look for the right mix of conditions, not what looks like a bargain.
Lesson for investors
The stock market is the vehicle of choice for the smartest investors through time. Property is risky, clunky and when market conditions change, incredibly slow to offload from any portfolio, which means it carries too many high risk features for ordinary investors.
Add to this, the political landscape and social housing issues and property investors have become social pariahs across the globe.
This is why investments such as stocks and bonds remain so popular. They are easy to buy, easy to sell, their value is immediately understood and for those that are traded on the major exchanges, their value is immediately transparent.
Stock market investors need to look for a number of giveaways that will impact their investment growth potential, including the Total Expense Ratio (TER) also known as the Ongoing Charges Figure (OCF). They need some understanding of risk and diversification but beyond that, they should also keep in mind the relative ease of buying and selling assets, and remember to keep an eye on trading costs which will negate growth. That said, the power of the stock market for investment growth potential is significant for ordinary investors.
Property can never really match the stock market for long-term returns
Which is a pity as so many Irish investors still have a massive affinity to it. It’s retro, a condition of our culture that appears slow to change as demonstrated in the Detroit Property Fiasco, where a licensed and supposedly seasoned investment adviser got the basics of investing so wrong…and lost millions of Euro in client money in the process.