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Should you be greedy when other investors are fearful
Buy counter cyclically. That’s what many “experts” are suggesting.
In fact, Warren Buffet is famous for saying: “Be greedy when others are fearful and be fearful when others are greedy.”
But this strategy is not foolproof.
Sometimes it works and sometimes it doesn’t.
Let me explain…
Currently, after massive price growth for over 5 years, the Sydney and Melbourne property markets are taking a well-deserved breather.
The news of falling auction clearance rates, stagnant real estate prices and a possible market top is making some potential buyers worried.
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They see difficult times ahead.
They are waiting in the sidelines for the picture to become clearer.
And while they are fearful, other strategic investors are taking advantage of the softer market to buy the type of property that 6 months ago they would have had to fight off strong competition at auction to acquire.
These investors understand that when they look back in five or ten years’ time they’ll wonder how they bought these investment grade properties so cheaply.
They know that economic growth, jobs growth, population growth and gentrification surrounding their property will underpin its long term growth.
I guess they’re being greedy while others are fearful and they are creating their own good fortune.
However, you can’t always rely on this strategy…
“Buy when others are fearful” doesn’t always work.
Ask those who bought properties in Perth or Darwin or in many regional locations over the last few years, believing these markets had bottomed.
And it’s much the same for those who looked for distressed properties or chased the next hot spot.
Some of these markets haven’t yet bottomed. Other will remain flat for a long, long time before they start rising again.
You see…markets don’t suddenly rise after they bottom.
They usually plateau for a number of years as vendors slowly put more properties on the market when they realise that buyers are returning.
And some mining towns and regional markets will not have another growth spurt for decades – they have more properties than there are people who will ever want to live in them.
This type of speculating has meant that many buyers missed out on the strong growth experienced in locations like our two big capital cities which were underpinned by multiple growth drivers.
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The bottom line:
We are moving into the next phase of the property cycle and at times of change it is common to get mixed signals and conflicting messages from the “expert” commentators.
Those property investors who follow a proven strategy, one that has worked in the long term over multiple cycles will do well as they become greedy when others are fearful.
Michael Yardney is a director of Metropole Property Strategists, which creates wealth for its clients through independent, unbiased property advice and advocacy. He is a best-selling author, one of Australia’s leading experts in wealth creation through property and writes the Property Update blog.
