How To Invest At the Right Time?

Posted by Dominic Cavagnino

Research suggests that the average human makes 35,000 decisions in a day. It’s fair to say that fear is a major contributor to the decisions which we make. In property terms, how fear impacts someone’s decision is based on the market’s sentiment. In the growth phase within a cycle, the ‘fear of missing out’ is a major driver for demand. In the slowing periods of a market, the ‘fear of overpaying’ takes over.

There is no quote more fitting when it comes to property investment than this, by Warren Buffett. In fact, it can be adopted to almost any situation in life.

‘You will continue to suffer if you have an emotional reaction to everything that is said to you. True power is sitting back and observing things with logic. True power is restraint. If words control you that means everyone else can control you. Breathe and allow things to pass.’

When you are fearful, logic is no longer present in your decision making. Overcoming fear is critical when making decisions that should not be based on emotion rather research and logic.

We promote a counter-cyclical approach which involves buying when no one else is and showing courage when others are fearful. This allows you to take advantage of the lack of demand and buy well.

The current environment has exposed many value opportunities which we’d consider the best we’ve ever seen. Ironically, this is in a market where there are less buyers than we’ve seen in the past 5 years. The external factors which are affecting the market such as; the tightening of lending and the shift in market sentiment have eliminated a significant portion of the market. In hindsight, this will prove to be one of the most financially beneficial times to invest in property. Having the courage and logic to see this is the key to successful property investment.

Take Sydney as an example, in 2014 and 2015, sales volumes (number of transfers) peaked at 59,968 and 57,176 respectively. In 2012 sales volumes were 35% below the peak. At this time, negative media coverage and fear of overpaying led to the lower sales volumes. Looking back, the cost to those fearful of overpaying was $78,200 per year as Sydney’s market increased dramatically.

There’s also a cost associated with the fear of missing out, when fear causes you to act erratically, for example those buying in late 2017 and early 2018 at the peak of the cycle. The inevitable market correction has resulted in a cost to them of around $86,000.

Identifying the right time, can be critical and extremely beneficial. Doing this, requires you to be brave and research focused. Take advantage of the market, be a shepherd among sheep and make decisions that your future self will thank you for.

Posted by Dominic Cavagnino, on 30th Oct 2018