As from April 2013 my Journey in Investing is to create Retirement Income for Life till 80 years old for two over market cycles of Bull and Bear.

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"The market is not your mother. It consists of tough men and women who look for ways to take money away from you instead of pouring milk into your mouth." - Dr. Alexander Elder

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Sunday, 28 December 2008

Propert Investing - doing the math (Part II)

me & my money, invest, Dec 28, 2008, thesundaytimes,

It is always at the back of my mind. If I have a lump sum and without doing any leverage, should I be doing stock or property investing? To be or not to be is the question?

Today, in thesundaytimes, we have this article from the property whiz .

Let look at Syed's property gain as follows:

Bought Sold Capital Profit Total% Years Annualized%
1997 2003 $345,000 $100,000 29% 6 4.8%
1986 1989 $230,000 $100,000 43% 3 14.5%
2005 2008 $430,000 $100,000 23% 3 7.8%

Just doing the math, there is nothing fantastic to shout about on these annualized ROC.

Is this true that on average, the risks of investing in property are understated and returns from investing in property are overstated. I believe so.

The most difficult part in stock investing is the emotional roller coastal ride of watching the value of your portfolio dropping by hours if not by days.

But, not for property as the pricing of residential property is infrequent and informal. Property investors never see red ink on a statement unless it is on the day of the sale. And most property investors never formally evaluate the performance of their investments at all. Imagine if you looked in a newspaper at the price of your home each day, just as you do with the price of your shares. Your attitude to risk would most likely be quite different.

Do you hear the guy going home to tell his wife: "Honey, jialiat liao, our home value drops by 50%". But, when your portfolio value drop by 50%, probably, that guy will say to his wife: "Honey, jialiat liao, you need to cut down your Christmas shopping by 70%".

Some will argue that property value will NEVER drop to ZERO, and companies can go bankrupt. But, surely, there are some blue chips that will not go bankrupt, as govt will certainly step in to rescue them as they are too critical to fail and will cause chaos to the country.

Likewise, property value will NEVER be a multi bagger as the govt will certainly step in to COOL IT DOWN before the country goes into riots.

Look at Hyflux, a $20K company with 3 staff grew into company of market cap of over $1B.

For property value to appreciate, it is true that a GREATER FOOL needs to appear, but it is not always true for a stock as the company can really grow big; e.g. Hyflux. Can the property grow over time????? from 2 rooms to 5 rooms???? No. But a GREATER FOOL must come and happy to pay much more.

Investor is very comfortable in dumping $500K into one property, but, to dump $500K into the stocks will be a nerve breaking experience. Investing in property require probably one off of real hard work, but for stock investing, it is endless chores of stocks picking, and heartbreaking at times when the stock plummet minutes after you have bought them.

So it is ALL IN THE INVESTORS MIND. Finally, INVESTING is still a Game of Strategy and Emotional Management. Choose your best strategy and emotions that fit you. It is ONLY YOU THAT COUNTS.

Other related articles:

http://createwealth8888.blogspot.com/2008/12/property-investing-doing-math.html

http://createwealth8888.blogspot.com/2008/12/investing-in-property-may-be-less.html

http://createwealth8888.blogspot.com/2008/11/assets-in-your-portfolio.html
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