“Pessimists sound smart, optimists make money”

Posted by Gavin Chau

At the beginning of every week, I struggle to think of what I should write as a blog – it’s like a microcosm of studying and observing the market cycles over a long time. It’s Groundhog Day. This will be the second last blog of the year and if you’re like most people your attention is being pulled in 1000 different directions as our thoughts drift away from work and towards Christmas and New Year celebrations. So, I asked some AI language models what the most searched-for topics in Australia concerning property. It’s an interesting way to see what we’re thinking about as a collective. Unsurprisingly it gave the following:

Interest rates (mortgages, affordability, property values)
Property market (prices, trends, and forecasts)
Rental market (prices and tenants’ rights)
Specific locations to buy (schools, amenities, growth potential)

Reading between the lines the market seems to be mired in fear and uncertainty – so maybe I’ll just address that. It’s a normal response given we have seen the fastest interest rate increases since the late 1980s, we’re in a per capita recession (just as we’re heading into the holiday season where more money needs to be spent), for renters most have seen their rent expenses increase by 25-30% and there’s that ever-present fear that our children will never be able to afford a house.

The interesting thing about bad news is that it’s compelling and captivates our imagination in a way that good news doesn’t. The fact that we give it a higher weighting than good news seems to be part of the human operating system. At some point in our evolution, this kind of thinking would surely have kept our ancestors alive long enough to pass on their genes to us. It’s probably the same reason why birds and other animals err on the side of caution and run before humans get a chance to get close to them. The overwhelming majority of people living in cities have zero intention of hurting birds, but this ultra-cautious instinct locked deep in the reptilian part of their brain keeps them alive from the tiny percentage that would.

Carefully crafted scenarios of financial Armageddon always sound more intelligent and interesting than good news does. Nobody wants to read that the market went up 6-10%. We can even see this through engagement levels which are 10 times as high for news articles reporting on some kind of crisis than good news ones. Yet if you were to look at the data the market goes up far more often than it goes down. And when it does go down, it invariably returns to make a new all-time high. Such is the way of the central bankers who think they can control the economy. In a weird twist the instinct that kept us alive throughout most of our existence, works against us when it comes to investments and making money. We just have to be aware of it and try to partition our brains when it comes to investing. All the bets against residential property in Australia over the last 60 years or more have been losing ones and as far as I’m concerned, I’ve positioned myself for at least one more great property cycle.

Posted by Gavin Chau, on 12th Dec 2023