I’ve been thinking about investment bubbles in the last few days.
If you read most of my articles you’ll know that I recently admitted I have been going back and watching all of Berkshire Hathaway’s AGM videos on YouTube. It is fascinating to hear Warren Buffett and Charlie Munger’s thoughts from the past about events that have since transpired.
A fair few of the questions in the 2005 and 2004 meetings related to the financial shenanigans that were going on and the potential of a bubble.
Warren Buffett wasn’t forecasting Armageddon, but he did point out the residential real estate bubble and that it can take a long time for problems to come to the surface. And even if a bubble doesn’t pop, the symptoms of a bubble aren’t resolved such as debt.
This is not a piece suggesting that Australian house prices are in an utter bubble and that Commonwealth Bank of Australia (ASX: CBA) & Westpac Banking Corp (ASX: WBC) need to watch out because Australia is doomed.
But I do think it’s worth thinking about how much of a household budget is going towards paying off a very large loan just for the median house price with a 20% deposit, which seems hard for the median household to afford. No wonder retail sales, wages and inflation are so low if the average Australian has little money to spend.
There’s nothing to suggest that Australian house prices will fall further than the 10% reduction that has already occurred. But there’s still a fair chance that good growth isn’t coming back any time soon, which is why I question whether investing in shares like National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Nick Scali Limited (ASX: NCK) is a good idea. Even if there isn’t a crash on the way, the high debt is still a problem.
Very low interest rates make investing difficult, but I’d much rather invest in businesses like MFF Capital Investments Ltd (ASX: MFF) and Rural Funds Group (ASX: RFF) instead of ones heavily linked to Australia’s economic strength or weakness.
Some of the other ideas I’d want to consider are these ASX growth shares.
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Motley Fool contributor Tristan Harrison owns shares of Magellan Flagship Fund Ltd and RURALFUNDS STAPLED. The Motley Fool Australia owns shares of and has recommended RURALFUNDS STAPLED. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019