Don't buy a house. Buy shares. $20,000 to $7,400,000 in 30 years

[brty]

Hi,

Lakemac,

Please if you are saying my figures are simplistic I throw the challenge down to those who mock them to prove otherwise with at least as much detail and explain where my assumptions are wrong.

Ok.

Which shares met your criteria and have grown at 15% pa for the last 15 years??

With the advantage of hindsight, the following has happened BHP at end of '93 was ~$7.50 a share. Compounding at 15% it would have to be $61 today (I've included splits). ANZ end '93 ~$5.00 a share, again compounding at 15% would have to be $40.68.
They are just 2 that have done well during the last 15 years. There are plenty of other "top" stocks from that time that have performed pitifully. There is ample evidence from history that many of todays top 30 stocks will not be in the top 100 in 15 years time. Stockmarket indexes have a survivorship bias and the performance of real stocks in the real world is different.

A more accurate measure of how shares have performed over time is given by the prices of the top LICs. They have professional teams selecting stocks to purchase and hold and the costs associated with them are quite low.
ARG 1993 ~$2.20 a share, 2008 (today) $5.28 growth 6% pa
AFI 1993 ~$1.75 a share, 2008 (today) $3.69 growth 5.1% pa
MLT 1993 ~$5.00 a share, 2008 (today) $13.66 growth 6.9% pa

Also there is the fact that in your tables when property became cashflow positive, you just sat on the cash. Yet with shares you continued to pony up, ie margin up the purchases.

Another also what did you do when you had a margin call on your shares as you would have had on some of them in '97 '98 '01 '03 and '08 ????

Shares look so easy for those who fall into the trap of neglecting the survivorship bias built into the statistics that get quoted ad-nauseum everywhere. Remember if your great grandfather had bought $10,000 of each company in the DJIA on the first trading day of 1900, and passed down the share certificates to you, you would have worthless pieces of paper as all those companies went broke. Yet that is not what is portrayed in the media.

brty

 

[Trembling Hand]

Remember if your great grandfather had bought $10,000 of each company in the DJIA on the first trading day of 1900, and passed down the share certificates to you, you would have worthless pieces of paper as all those companies went broke. Yet that is not what is portrayed in the media.

PERFECT!!

 

[brty]

Hi,

Sorry to have killed this thread off again with a dose of reality, any further comments from anyone, or questions for that matter??

brty

 

[Awesomandy]

Remember if your great grandfather had bought $10,000 of each company in the DJIA on the first trading day of 1900, and passed down the share certificates to you, you would have worthless pieces of paper as all those companies went broke.

That is somewhat incorrect, as you would be flogging these pieces of paper to museum as historical items of interest, so the paper aren't exactly worthless.

Still, I note that the return of the Aussie shares index is just 14.5% over the past 30 years, so you would've needed a 7% dividend yield after tax or there abouts to reach the required rate of return to achieve $7.4m - doesn't quite seem possible.

And then, if you look at 1970 - 2000 instead, you'll find that the return of the index was only around 11.5%, i.e. 10% lower than the required rate of return - they better be paying you dividends like there's no tomorrow, year after year.

 

[Wysiwyg]

Posted by brty

Remember if your great grandfather had bought $10,000 of each company in the DJIA on the first trading day of 1900, and passed down the share certificates to you, you would have worthless pieces of paper as all those companies went broke. Yet that is not what is portrayed in the media.

A block of land worth the same amount/same time on the Gold Coast would now be worth more money than anyone would ever need.

Companies come and go yet land/house remains a lifetime/s.

E.g. my dad bought his house for 35k and still lives in it. the house nextdoor went for 225k last year.

I do like shares for a medium term hold though.

 

[lakemac]

busy at the moment brty - will be back with an answer.
Don't buy that house quite yet...

 

[hissho]

anyone still interested in this topic or it's officially dead?

 

[lakemac]

No no he's not dead, he's, he's restin'!

You assured me that its total lack of movement was due to it bein' tired and shagged out following a prolonged squawk.

 

[brty]

Lakemac,

In 2 and 1/2 months you have been unable to come up with any evidence to the contrary of my post.

I'm still waiting for something/some type of response from the long term pro share brigade.

Waiting, waiting, patiently waiting.

Of course it is possible that there is no response to harsh reality over lovely theory...

brty

 

[lakemac]

Patience is a virtue.

Some more pressing personal issues to attend to before I write the next installment.

As I said it is not dead yet, just very busy.

 

[lakemac]

On the other foot I don't see any compelling hard facts coming from the real-estate brigade to refute my side.

I have often asked for details on real estate transactions which rarely seem to be forthcoming.

I have one adjustment and that is the effect of depreciation. My model did not take that into account. I need to adjust for that as it does affect the profitability of the investment.

So rather than just sit on the couch, put up at least some hard facts on the real estate deals.

By hard facts I mean:

Capital account:
Purchase price of the property excluding other costs
Other costs to purchase the property (legals, inspections, agents fees etc).
Purchase date
Deposit
Amount borrowed (which should be Total purchase + other costs - deposit)
Interest rate at purchase
Loan type: I only or P&I
Number of properties inspected pre purchase (ie. how much effort was it to find this property)
Sale date
Sale amount (property only excluding agents costs etc)
Sale costs (auction, agent fees, advertising)
Depreciation amount

Income account:
Rent per week/month/year
Vacancy (actual and/or expected)

Expenses:
Repayment amount on loan + interest rate changes along the way if any
Agents fees (% of Rent or actual, releasing costs)
Insurance costs (landlord, property, rent etc)
Any deposit insurance
Ancilliary holding costs
Taxes (land tax, rates etc)

You need all that in order to correctly compare investments.
I have collected details on about 8 investments.
More hard data points would be good if anyone can put them up.

I find few people can or do.
Even API magazine (to which I subscribe) rarely publishes the hard facts. They gloss them over in order to make the stories they publish look better than what they are.

Maybe I am wrong on the share side of things being a better investment. Give me some hard evidence to convince me otherwise.

It might edify and enlighten those that seek answers.

 

[Sir Osisofliver]

Hey guys (lakemac and brty) what is with the arguing?

Don't you guys know that each asset class has a specific period of time in which it wil outperform the other asset class?

You guys seem to be working yourself into a frenzy over which is better - Shares or Property and are struggling to try and come up with a way of comparing apples to apples in terms of depreciation, use of leverage, taxation benefits etc.

I've seen these arguments before and stockbrokers arguing with estate agents about which is better and both of them can spout stats that support their view. A favourite trick of each is to do exactly that and take a segment of time to support their view and ignore all other data.

So when we are dealing with cyclical assets, why the hell wouldn't you move away (or at least protect it) from that asset class when the cycle downtrends?

Neither one is superior to the other, neither one will give you a good result if you expect you can just buy it and then ignore it for 50 years, without maintenance, insurance, improvements, gardening etc etc.

Sir O

 

[tech/a]

So when we are dealing with cyclical assets, why the hell wouldn't you move away (or at least protect it) from that asset class when the cycle downtrends?

Love it.

95% of people missed the dot com boom
Of those that got it
90% of them managed to also catch the bust
95% of people missed the late 90s early 2000s property boom.
95% of people missed the last 7 yrs bull run in the stock market.
95% of people in the stock market rode and most are still riding the crash of the last 2 yrs.

To compound matters 95% of Financial Advisers/writers and not a single bank manager either didnt see or didnt know and didnt advise their clients how to take part or avoid any of the above,well enough in advance.

To spruik how dumb the general populace is with regard to cycles-----I certainly wouldnt narrow it to

Don't you guys know

You guys.

In hindsite everything is crystal clear and some of us through good management or plain luck did manage to take advantage of these cycles up and down.

I have never seen the eminently qualified (outside of these circles) warning of us to take advantage of the pending booms or warning us of pending busts---mind you there were a few here who were/are on the money!!

But rest assured I'll be waiting with baited breath for Sir
Osisofliver's clear and concise buy signal for the next share boom even better his pending warning---if any of further downside and his advice on property domestic,commercial and industrial.
Your "Beginners thread" is an interesting read.

 

[Trembling Hand]

Tech I'm with you. Its all clear in hindsight. And the asset roller coaster is the easiest hindsight game around.

It would seem the only way to grow true wealth not based on some sort of ponzi scheme would be to create and grow a business.

IMO.

 

[Mactavish]

An interesting debate... both have their positives and negitives i guess...

 

[Taltan]

There is no right answer here due to the number of external factors affecting both markets. Govts play around with taxes, grants, immigration policies and subsidies so unless you know govt policy for the next 40 years its impossible to pick. Having said that in the very long-term shares should outperform property because its a riskier investment, so if you have a 30+ year outlook I would definately buy shares (remembering that they are volatile so if you say bought shares in 1980 with your 30+ year outlook you should have reached your target sometime 2004-2007 and sold, too late now)

 

[tech/a]

There is no right answer here due to the number of external factors affecting both markets. Govts play around with taxes, grants, immigration policies and subsidies so unless you know govt policy for the next 40 years its impossible to pick. Having said that in the very long-term shares should outperform property because its a riskier investment, so if you have a 30+ year outlook I would definately buy shares (remembering that they are volatile so if you say bought shares in 1980 with your 30+ year outlook you should have reached your target sometime 2004-2007 and sold, too late now)

I disagree.

We can all gain experience from hind site.
That's why some here got it pretty right. But there is more to it.

We have to always be on the look out for in balance.
The more out of whack the imbalance the more opportunity that exists in the direction of the correction--to balance--this often over corrects both to the positive ( You'll note it takes a long time to stop a bull run) and to the negative (You'll note panic often sends something plummeting beyond balance).

Take property.

There was in Australia a great deal of demand and interest rates and house prices coupled with rent return meant it was impossible NOT TO positively gear a purchase in the late 90s---all had to re balance.

When you see this again and you WILL Ive seen it twice in my 55 yrs.--buy your brains out.

On the negative side we now have over supply in some areas and housing costs far exceeding return--again in balance.

Take shares.

The boom times of China and India sent resources sky high. Massive demand
2001-2007.
The exact opposite now.

Opportunity was there and many see it but are frozen by fear or uncertainty--so they do nothing.
Some made a fortune on the way down on the markets and although I saw it I didn't milk it for all it was worth---an opportunity lost!

But got the Property and Share market booms.

Much had to do with Good management and EVEN more amazing luck.

My little story is that I received on my desk Civil Drawings for the Southern Expressway 3 yrs before it was built---Civil is my field.
I live 3ks further on than the end of the freeway.
I went home to my wife and said we should buy property here as the South was going to open up with the freeway.

We bought 2
Pretty soon we realised that banks loved the positive gearing and finished up with 10 2 yrs after the freeway was built (6 yrs later)--the rest as they say is history.

Along came this across the board property boom--I didn't pick it but saw opportunity in other areas---the point is had I not been holding asset I would not have taken part in this amazing opportunity.

In 2001 I developed a trading system for long term long trading. "Techtrader" its still traded live on Radges site (Its sort of in hibernation now).

At the time I had NO idea that we would see a 7 yr bull-market.
I only started trading it myself with the same funds allocated to the live trading sample 12 mths after it had been running. (I had little faith!).
Unbeknown to the missus. Finally pulling out in July 2007--a little early as it turned out! The results are there for those to see who are interested.

Now had I used even half the funds I had used in property---well--hindsight is indeed a wonderful thing.

I don't mean this as a chest beating look at me exercise but--

The point is that I was not that smart I was in the game and when I was the opportunity presented itself and I unwittingly was in a position to take advantage of it---twice.

You HAVE TO BE in the game.
You need--I need---to recognise opportunity and take advantage of it.

It was there on the down side and it went begging---even though I and a few of us clearly saw it unfold in front of our eyes---in fact we ALL did.

 

[brty]

Hi,

Arguing?? I was just trying to highlight how some simple assumptions do not lend themselves to viable outcomes. The concept of "good stocks" held for the long term, is fraught with the danger of survivorship bias in the outcome.

A stock is usually regarded as a "good stock" because it performed well in the past. Before that performance, it was most likely not regarded as a "good stock".

brty

 

[Sir Osisofliver]

Love it.

95% of people missed the dot com boom
Of those that got it
90% of them managed to also catch the bust
95% of people missed the late 90s early 2000s property boom.
95% of people missed the last 7 yrs bull run in the stock market.
95% of people in the stock market rode and most are still riding the crash of the last 2 yrs.

To compound matters 95% of Financial Advisers/writers and not a single bank manager either didnt see or didnt know and didnt advise their clients how to take part or avoid any of the above,well enough in advance.

To spruik how dumb the general populace is with regard to cycles-----I certainly wouldnt narrow it to



You guys.

In hindsite everything is crystal clear and some of us through good management or plain luck did manage to take advantage of these cycles up and down.

I have never seen the eminently qualified (outside of these circles) warning of us to take advantage of the pending booms or warning us of pending busts---mind you there were a few here who were/are on the money!!

But rest assured I'll be waiting with baited breath for Sir
Osisofliver's clear and concise buy signal for the next share boom even better his pending warning---if any of further downside and his advice on property domestic,commercial and industrial.
Your "Beginners thread" is an interesting read.

Hi TH,

Knowing how to recognise these things before they happen is possible - after all isn't that why we trade? Because we think we can predict with a degree of certainty what will happen before it does? Otherwise we'd all believe strictly in the efficient market hypothesis and just invest in the index. I will get to what to look for in the beginners thread so feel free to read that. I'll also tell you exactly what I did to protect my position (which amounted to a rolling series of put options which cost about 6% of the portfolio value). Remember that the share market (and to a lessor extent Property markets) are cycles and just like every other cycle events within that cycle repeat themselves.

So TH - ask yourself - what were the major events that occurred prior to the correction - and can you find a repeatable pattern? You can look at a fairly small number of characteristics of our market and get a sense of where it is at any particular time - if you then know the cycle of events you know what is coming next. If you want me to name a date and a specific number on the All Ords - no I won't be doing that, but I will be telling you what to look for to make up your own mind.

95% of advisers, real estate agents and bank managers have a vested interest in a single asset class. There are no stockbroker/real estate agents out there. They specialize. And so they ignore anything that doesn't apply to their speciality. They filter it out because it doesn't fit their paradigm.

Only time will tell you whether you think the lessons in the beginners thread apply TH - but feel free to weigh in with your opinion - I heartily encourage you to do so. (I'll even include some stuff on wave analysis of the broader market that you can get your teeth into if you want).

Cheers
Sir O

 

[Trembling Hand]

Sir Osisofliver ya kidding!!