Investment Cycle and the Best Road Forward

[kph]

Was thinking today about the different investment cycles and classes and wondering what the future holds.
As I see it, it is generally accepted that we have the three general groups that make up the cycle.
Equities, Property, and Cash.
I reckon there must be an 'Other' category as well.
This should include, business, art, antiques, whatever, etc.

Seems like there is a lot of uncertainty in the equities and property market. So cash is the answer right? How many actually believe this and are cashed up waiting on the sidelines waiting for a break in the weeather??

For my part we have used property to generate equity and profits and this has gone into building a business and probably more businesses. This seems to be the fastest way of building wealth atm.
Does anyone else have any thoughts or experiences?

 

[chilliaa]

Was thinking today about the different investment cycles and classes and wondering what the future holds.
As I see it, it is generally accepted that we have the three general groups that make up the cycle.
Equities, Property, and Cash.
I reckon there must be an 'Other' category as well.
This should include, business, art, antiques, whatever, etc.

Seems like there is a lot of uncertainty in the equities and property market. So cash is the answer right? How many actually believe this and are cashed up waiting on the sidelines waiting for a break in the weeather??

For my part we have used property to generate equity and profits and this has gone into builing business and probably more businesses. This seems to be the fastest way of building wealth atm.
Does anyone else have any thoughts or experiences?

Easy, 90% of the time shares or property is the way to go. 10% of the time cash is king. The problem is that during those periods when cash is king, the volatility 'clenses' out the excesses from the other two investment classes.

For myself i have never held cash, there are ALWAYS better opportunities, you just have to be prepared to search where others arent looking, and if you are not investing in cash you should have a 5yr minimum horizon for the asset class to play itself out (in residential property this could be 10yrs to 'wash' the cycle and to account for transaction costs, especially *%&^ stamp duty)

 

[kph]

Nice response Chillaa,
Makes logical sense.
Can you detail some of those better opportunities in the current market, considering both property and equities are in the doldrums?

Kevin

 

[Dazz]

Kevin,


That is indeed a bold call. Property market is in the doldrums. To me, it's such a massive beast to behold, I'd defy anyone to describe it as such.


The housing market might be sluggish in NSW.....but what of the rest of the properties that also constitute "the market" ??


1. Bed and breakfast market in Launceston.
2. Cattle stations west of Dalby.
3. Strata factory market in Dry Creek.
4. Boatpens in Fremantle.
5. Off the plan apartments in Cairns.
6. Strip malls in Brisbane.
7. Dockyard space in Darwin.
8. CBD office space in Wynyard.
9. Vacant blocks opening up in Sale.
10. Wheat and sheep farms west of Toodyay.


Surely all these examples of the property market are not "in sync" with the housing market near Parramatta ??


Are you positive the property market is in the doldrums ?? You must have done a massive amount of research to come to that conclusion.

 

[Aaron Sice]

there shoudl be an "other". my art portfolio has made 50% in 4 months, + 7.5%pa yield rent.

 

[HiEquity]

The housing market might be sluggish in NSW.....but what of the rest of the properties that also constitute "the market" ??

10. Wheat and sheep farms west of Toodyay.

Not many of those Dazz? Unless Perth has become prime farming land in my absence?

kph

We aren't selling up to go into cash and we have bought more resi this year at an appropriate yield to give us some protection (also a development block which is a nice combination although we won't develop it). Now looking at commercial / industrial opportunities to put a toe in a different pond and see if it gets bitten off!

The business idea is a great one but difficult for a passive investor. Returns are generally commensurate with risk of course and business risk generally goes up in an economic downturn... although construction in mining towns would still be a good business in this downturn! A bit like property - you can always find a niche that works in the circumstances.

BTW reading through some posts of yours on other threads I think we may have met - ever work in the NWCC?

 

[Dazz]

Now looking at commercial / industrial opportunities to put a toe in a different pond and see if it gets bitten off!

C'mon in...the water's fine.


Watch out for the barracudas.....they spit you out even quicker than the sharks.

 

[The Y-man]

I reckon there must be an 'Other' category as well.
This should include, business, art, antiques, whatever, etc.

I believe "business" is included under "equities".

I private business still has owner(s) equity.

Cheers,

The Y-man

 

[kph]

Kevin,


That is indeed a bold call. Property market is in the doldrums. To me, it's such a massive beast to behold, I'd defy anyone to describe it as such.

Are you positive the property market is in the doldrums ?? You must have done a massive amount of research to come to that conclusion.

Good point Dazz,
Agreed that you have niche areas that are out of synch with the 'general' perception.
We are personally over-overwieght in property under development to the tune of $35.5 mil at cost with end val ( fingers crossed!!) of $54.5 mil, so I agree 100% that there are niches that are still performing.

And no, I don't really do any research ( we're too busy on the ground just DOING) so touche` to that bit of sarcasm at the end. It becomes you.

Kevin..

 

[kph]

kph

We aren't selling up to go into cash and we have bought more resi this year at an appropriate yield to give us some protection (also a development block which is a nice combination although we won't develop it). Now looking at commercial / industrial opportunities to put a toe in a different pond and see if it gets bitten off!

The business idea is a great one but difficult for a passive investor. Returns are generally commensurate with risk of course and business risk generally goes up in an economic downturn... although construction in mining towns would still be a good business in this downturn! A bit like property - you can always find a niche that works in the circumstances.

BTW reading through some posts of yours on other threads I think we may have met - ever work in the NWCC?[/QUOTE]

Geeze, small world.
PSC, SOCC, DOC, NOCC, NWCC ( now HPCC)
Pulled the pin in Jan.
Felt like that Red Indian in One Flew Over The Cuckoo's Nest.
When I noticed my mates with the lobotomised look about them, I decided to escape ( run for the hills....run for the hills!!!)

And yes Business is definitely not passive but it can be if you put enough good people and systems in place. That will have to be the next challenge.

KEvin

 

[HiEquity]

Geeze, small world.
.....
Felt like that Red Indian in One Flew Over The Cuckoo's Nest.
When I noticed my mates with the lobotomised look about them, I decided to escape ( run for the hills....run for the hills!!!)

Thought so - I was that slack boss you had for eight months or so the year before last. Always wondered what you spent your time doing on night shift - now I know!

Good to hear you made the move - I couldn't handle it for long for much the same reasons...

 

[chilliaa]

Nice response Chillaa,
Makes logical sense.
Can you detail some of those better opportunities in the current market, considering both property and equities are in the doldrums?

Kevin

Im sorry but i feel that the 10% of the time cash rule has already passed. It should have been used during later part of 2007.
Ive moved back into australian financials and industrial shares (first time ive seriously moved back into the Australian stock market since 1997!!!).
I also moved into hybrid securities, mainly unsecured convertable notes and convertable preference shares.
When BnB's share price was really up the creek a few months ago, i bought the unsecured notes for 35c on the dollar. Great effective interest rate of more than 25% p.a. on top of that a KNOWN capital appreciation of 280% by 2010 (so long as BnB didnt go bankrupt).

I still hold residential property as the transaction costs of property are too high to move in and out, and long term i am still a great believer in residential property as a great way for the layman investor to make excellent returns. However i think residential property for the next 5yrs minimum wont be an excellent return for the following reasons:
1) i actually believe the message YLD Matters keeps harping about affordability. Residential property was expensive on traditional valuation methods even before the recent round of interest rate increases, now they are becoming close to unbearable. If interest rates decline then residential property will still be 'expensive' until wages increase.
2) One of the major contributions to the recent increase in residential prices was easy credit lending. (This applies to Australia as well). Easy credit distorted the intrinsic price of property by allowing an artificial increase in demand. Do not expect this factor to come back into play for at least another 10-15years. Hence even with a drop in interest rates, new demand will be curtailed by tighter lending criteria.
3) I think the australian economy is moving back into a structural shift of higher inflation. Ignoring the impact of food and energy based inflation, the huge disinflationary cylinders of lower inflation through currency appreciation and structural sourcing of imports from China will be reversed.

Note i am less confident of the thrid issue compared to the first two.

 

[kph]

Yep agree fully with your comments Chilliaa.
I was hearing in early 07 that the old or smart money was out of the market at the end of 06 and into cash on the sidelines waiting for the rout.
Was also hearing it was going into broadacre landbanking on the outskirts ( 100km) of the CBD

Evidence of CBD commercial holding being sold as well to take advantage of the tight rental market ( Perth) leading to cap rates below 5% being achieved.
The next phase of the cycle is when this money that is sitting patiently on the sidelines, will come back into the market to take advantage of the mortgagee sales and the like.

But overall the affordability situation needs to be addressed otherwise the middle class will become the new poverty class, living out on the streets, and we will be heading towards fulfilling the longer term cycle ( the 2000 year one) as we all go back to living in caves.
Kevin