New to stocks and wanting to build up capital to invest in property

[michael522]

Hi everyone i'm new here
I'm a university student studying nursing and have a dream of one day being a property developer. As I don't have much cash I am looking at stocks to be my initial investment vehicle (my silver investment is more a long term thing).
I want to educate myself about stocks (having read Robert kiyosakis books) and am wondering where to get started as I want the right education. I have noticed there are a lot of supposedly magic formulas or programs being sold on the internet that promise huge gains- ripoffs most likely... I am currently reading a newsletter called future money trends(which I did a search for on here but got no hits) and they seem to make a lot of good predictions and suggestions such as bit coin which has gone up like 1000% since they recommended it (even though its falling now). does anyone else have an opinion about future money trends? I would also like to know how to do my own research on stocks they suggest.
thanks for any replies

 

[Samtheman]

http://www.amazon.com/The-Intellige...94178545&sr=8-1&keywords=intelligent+investor

“By far the best book on investing ever written.” (Warren Buffett)


Just finished this book highly highly recommended will change someones mindset about what they thought was 'investing' and how it was likely speculation.

 

[luutzu]

First, don't invest in property. On average, over the last century [ie 100 years], property has been found to actually return nothing when you factor in inflation (Schiller's book)... On average in Australia, over a decade or two, return averages around 3-5% p.a.

The only people to make money out of property are developers, banks, agents, and occasionally a few investors lucky enough to get in and get out at the right time.

----

Books:

The Intelligent Investor - Benjamin Graham
-- Buffett said it's his best investment was to buy that book and apply it. It give you a new perspective on the stock market and how to go about valuing it.

Common stocks and Uncommon Profit - Phillip A Fisher.
-- I find this the be one of the best book on investment.

A couple by Peter Lynch are also good.. .then read investment textbooks, ignoring their efficiency market and CAPM rubbish, go straight to the financial statement analysis will serve you well.

Then read everything from Warren Buffett - his reports to Bershire Hathaway's shareholders, his speeches...


You could get these for free on the web if you know where to go... don't waste money on those newsletter companies.

 

[ROE]

Hi everyone i'm new here
I'm a university student studying nursing and have a dream of one day being a property developer. As I don't have much cash I am looking at stocks to be my initial investment vehicle (my silver investment is more a long term thing).
I want to educate myself about stocks (having read Robert kiyosakis books) and am wondering where to get started as I want the right education. I have noticed there are a lot of supposedly magic formulas or programs being sold on the internet that promise huge gains- ripoffs most likely... I am currently reading a newsletter called future money trends(which I did a search for on here but got no hits) and they seem to make a lot of good predictions and suggestions such as bit coin which has gone up like 1000% since they recommended it (even though its falling now). does anyone else have an opinion about future money trends? I would also like to know how to do my own research on stocks they suggest.
thanks for any replies

If you are successful in stock market and becomes a decent investor I bet you by that time you will never look at properties except for buying a dream home and some where to live

 

[CanOz]

First, don't invest in property. On average, over the last century [ie 100 years], property has been found to actually return nothing when you factor in inflation (Schiller's book)... On average in Australia, over a decade or two, return averages around 3-5% p.a.

Interesting....Did he factor in the fact that if you finance the majority of the property and can get a positive cashflow out of it, then your tenants are paying back the financing. That's the attraction with property. How do you do that with equities....Warren?

Also...What the?

OP =>

a dream of one day being a property developer.

You....

The only people to make money out of property are developers

 

[luutzu]

Interesting....Did he factor in the fact that if you finance the majority of the property and can get a positive cashflow out of it, then your tenants are paying back the financing. That's the attraction with property. How do you do that with equities....Warren?

Also...What the?

OP =>

You....

If you're friendly enough with a bank manager, they might lend you 10, 20, 30 times your equities to play with. Corporate raiders, the guys at Long Term Capital Management do that all the time in equities... OK maybe not your local bank manager, but investment bankers will for sure.


Leverage in property only works if you buy and soon after the market booms then you sell... otherwise, there's no such thing as leverage when you pay 20% deposit and then pay the bank, say, 6% interests on the rest and receive rental income of 5%.

Your return, assume zero stamp duty, local gov't rates, depreciation etc.. is negative 1%.

That's not leverage, that's just getting into debt, borrowing money to invest at a loss... and more loss if interest rate rises, and a definite, real loss if the property market collapse.

 

[luutzu]

meant to say ... developers (sometimes).

By developers i mean the builders... and they only make money if they count paying themselves the wage as income.

Often, as investor, as capitalist... developers make around 5%, maybe 7% on their projects - if they're lucky. And for big developers like Multiplex, Leighton... a few bad projects and they got taken over.

 

[burglar]

meant to say ... developers (sometimes).

By developers i mean the builders... and they only make money if they count paying themselves the wage as income.

Often, as investor, as capitalist... developers make around 5%, maybe 7% on their projects - if they're lucky. And for big developers like Multiplex, Leighton... a few bad projects and they got taken over.

One developer makes >20% on properties in our street.

Buy property $300k
Subdivide $35k
Demolish $10k
Build $175k
Build $175k

Total Outlay $695k

Sell $420k
Sell $420k

Profit before abnormals $145k

About 20%

But then, I may have missed a few sundry costs (stamp duties, commissions)

 

[CanOz]

If you're friendly enough with a bank manager, they might lend you 10, 20, 30 times your equities to play with. Corporate raiders, the guys at Long Term Capital Management do that all the time in equities... OK maybe not your local bank manager, but investment bankers will for sure.


Leverage in property only works if you buy and soon after the market booms then you sell... otherwise, there's no such thing as leverage when you pay 20% deposit and then pay the bank, say, 6% interests on the rest and receive rental income of 5%.

Your return, assume zero stamp duty, local gov't rates, depreciation etc.. is negative 1%.

That's not leverage, that's just getting into debt, borrowing money to invest at a loss... and more loss if interest rate rises, and a definite, real loss if the property market collapse.

Ummm, its not all this simple....certainly hope your putting more effort into your stock picks Warren Jr...

As i said, you need to be cash flow positive and have the property pay for itself, including whatever the effect of interest rates.

I believe property plays an important part of an overall strategy. Just as equities and managed futures do. Even Buffet owns property.

Oh, LTCM was a hedge fund.....read this.

Corporate raiders typically use other debt markets to borrow...not usually just the bank.

 

[luutzu]

One developer makes >20% on properties in our street.

Buy property $300k
Subdivide $35k
Demolish $10k
Build $175k
Build $175k

Total Outlay $695k

Sell $420k
Sell $420k

Profit before abnormals $145k

About 20%

But then, I may have missed a few sundry costs (stamp duties, commissions)

Yea, but over what time period? 2 years?

And if the builder were to pay himself a wage, as a project manager say... what will be his profit?

There's the agent/auction fees, around 5 to 7 K? Legal? Stamp duty...

 

[luutzu]

Ummm, its not all this simple....certainly hope your putting more effort into your stock picks Warren Jr...

As i said, you need to be cash flow positive and have the property pay for itself, including whatever the effect of interest rates.

I believe property plays an important part of an overall strategy. Just as equities and managed futures do. Even Buffet owns property.

Oh, LTCM was a hedge fund.....read this.

Corporate raiders typically use other debt markets to borrow...not usually just the bank.

What do you mean by cash flow positive? As when you pay enough deposit/capital into the property that the borrowing is low and its interests can be paid from rent?

Your capital should also have a cost too. It probably ought to be higher than the interests on the borrowing.

Anyway, i've done the maths before and in general, if property is to be considered as an investment, it does not return as well as equities.

Of course you can make mistakes in equities, lose everything... but then you could also lose everything if your property burnt down or the gov't decided to build an airport next to it etc.

If a property were to return me a higher return, for sure i'll take it. Just most often, it does not.

I guess the idea is to know what you're doing. So if you don't know enough about the stock market or enough about a particular stock, best to stay out of it and invest in what you do know... Although on average, and over the long term, equities outperform property, people shouldn't get into it just to diversify.

Same with property... if you know about stocks and could see a few good opportunities, it make no sense to put some cash into property for safety or risk reduction.


Buffett is a rich man, so he can have his indulgences I read that he owns, beside his home(s), two properties as investments.. .both of which he said return a high yield on his initial capital outlay.

So if a house around my area were to sell for 2 or 300K... it'll be a good investment. But it being 700K, or $500K for just the land and another $350 to build... it's not a good investment for a capitalist - you know, the fat cats that does nothing but put out money and expect safety of principal and a good return.

 

[Julia]

Your return, assume zero stamp duty, local gov't rates, depreciation etc.. is negative 1%.

Sounds about right to me. Examples have been given on another thread where no borrowing is involved and the return, after expenses, but before tax is a bit under 3%.

 

[Sir Osisofliver]

What do you mean by cash flow positive? As when you pay enough deposit/capital into the property that the borrowing is low and its interests can be paid from rent?

Your capital should also have a cost too. It probably ought to be higher than the interests on the borrowing.

Anyway, i've done the maths before and in general, if property is to be considered as an investment, it does not return as well as equities.

Of course you can make mistakes in equities, lose everything... but then you could also lose everything if your property burnt down or the gov't decided to build an airport next to it etc.

If a property were to return me a higher return, for sure i'll take it. Just most often, it does not.

I guess the idea is to know what you're doing. So if you don't know enough about the stock market or enough about a particular stock, best to stay out of it and invest in what you do know... Although on average, and over the long term, equities outperform property, people shouldn't get into it just to diversify.

Same with property... if you know about stocks and could see a few good opportunities, it make no sense to put some cash into property for safety or risk reduction.


Buffett is a rich man, so he can have his indulgences I read that he owns, beside his home(s), two properties as investments.. .both of which he said return a high yield on his initial capital outlay.

So if a house around my area were to sell for 2 or 300K... it'll be a good investment. But it being 700K, or $500K for just the land and another $350 to build... it's not a good investment for a capitalist - you know, the fat cats that does nothing but put out money and expect safety of principal and a good return.

*facepalm*

Luutzu currently about 40% of my assets are in property (either residential or commercial). As has been said before in these forums... Sometimes there's a great time to buy shares...and every so often a bloody great time to buy shares. Sometimes its a good time to buy property...and sometimes its a bloody great time to buy property...recognizing these moments is the the key to long term real wealth creation. By exposing yourself to a single asset class that exhibits significant volatility...your long term equity curve will likely follow only that equity curve having no exposure to other curves. Each asset class has it's moment to shine. What you've basically told the OP is...stick to the most volatile asset class and ignore the movement and opportunity that exists in other asset classes. This smacks of being myopic and short-sighted.

Here are some reasons why I hold that much in property...

"Leverage in property only works if you buy and soon after the market booms then you sell... otherwise, there's no such thing as leverage when you pay 20% deposit and then pay the bank, say, 6% interests on the rest and receive rental income of 5%."

..so shouldn't you figure out what makes the property market boom and take advantage of this phenomenon? If you can do that successfully, that means that your property quickly becomes cash flow positive without an injection of your own equity. This enables you to hold the asset indefinitely, while value accumulates.

Equity curve - the equity curve for a share portfolio over the longer term is very volatile in comparison to residential and commercial property. Note that I did not say Listed Property Trust or structured product. The moment you list a product (even if that product is property), you correlate the product to the share market. This defeats my purpose of owning an asset that is negatively correlated to the share market.

I can tailor the leverage associated with property to use a gearing profile that suits my risk tolerance. Whilst I can do this is shares as well, it is still pertinent.

The standard security value of a residential property averages 85% in comparison to shares which is 66%. This gives me additional borrowing capacity.

This additional borrowing capacity give me access to a large amount of short-term funding, should I need it.

These are just some of the reasons why I own property, but IMO I disagree with your statement that equities always outperforms property over the longer term.

Cheers

Sir O

 

[burglar]

... Buffett is a rich man, so he can have his indulgences I read that he owns, ...

traditional ball-maker Sherrin, which is owned by American magnate Warren Buffett.

read more:

 

[luutzu]

Depends on your age and income requirement, having a stable income stream like rent is understandable.
And i'm sure it make all of us sleep better knowing if the market were to fall, at least the tenants will pay us $500 a week or so and that's enough to do the shopping.

But... that's not really investing as i understand it. It's financial planning, financial security.. not investing as a pursuit of the highest possible return with the lowest possible risk.

Risk is not beta, it's not the average market price fluctuation of your stock versus the fluctuation of a representative group of that stock etc. If you buy a stock today, and next week that stock dropped 30% while the market dropped 2% or even gained 5%.. .why would buying it at 30% discount riskier? Put another way... if you're buying 1 can of Coke for $1 then the owner said the second can is for 50 cents.. .would you look at his shop and seeing that no other stocks are being discounted and conclude the second Coke is riskier?

It might be Vanilla or Cherry Coke or damaged or spoil... but if it's the real thing, you'll want more.

If you know what the value of your assets, or know the value of someone else's assets on sales... and have the courage, and capital, to take advantage of those opportunities... That's not being myopic or short sighted, it's the definition of intelligence and far-sighted ness.

The hard part, of course, is to know, with reasonable certainty, of what you're looking at. This is where Graham's margin of safety, where Fisher's scuttlebutt analysis, where Buffett's emphasis on buying established businesses whose future are pretty much as it has been up to today (only bigger due to its own growth from its strong position and able management) etc... come into play. well the other parts all came from them anyway 'cause i got nothing original or new...

---

Stocks are share of businesses. Not all stocks are equal or represent the same thing called stock.
So you could diversify within this one asset class... The businesses on the stock market does represent the entire economy.

So if you are able to know when or want to be expose to certain asset classes, like property... buy REITS or developers or infrastructure stocks. You'll probably do much better through owning Stockland or Australand stocks, at the right time, than buying a property to flip... and will also reduce your risks too. Those property companies has billions in real assets all over the country, your $1 million could maybe buy you 1 or 2 properties in 1 or 2 states... and if one of those property market is depressed, or one of your rental burnt down, that's half your investment damaged.


Let say you see a booming property market, low interest rate, more home and offices doing up... The best thing to do is probably not rush out there and buy yourself a property... better, and i have seen this work, to buy into stocks of companies that supply those demands. Concrete, building/construction suppliers like CSR or Boral...
I don't own these... I should actually take a look see though

---

Why would you want a smooth earnings/returns curve? Unless your pay and bonuses depends on it I think it's more important to look at the entry and exit point, everything in between only make you feel happy or sad, not richer or poorer. And this is why I don't borrow or leverage... i want to keep my mistakes private and not forced to recognised it and having to make another mistake

---

Over the long term... 10 years should do it... equities has been shown to outperform properties. You could easily find evidence of this... but that's a general statement you say...

i don't think many people could point to many example of properties that gained 5 or 10 times its price in 10 years. I could point to CSL, Monadelphous, Cochlear, CBA ? as examples... that's not to say that i could have seen or predicted these... it's just to show that if you know what you're doing, you could make good return... even in property.

 

[burglar]

Yea, but over what time period? 2 years? ...

Are you kidding me?
He'll do this 4-6 times over in 2 years!

Why don't I emulate him?

1. Cos I would fall for all the newbie traps.
2. I could not lose my scruples overnight!

 

[luutzu]

Are you kidding me?
He'll do this 4-6 times over in 2 years!

Why don't I emulate him?

1. Cos I would fall for all the newbie traps.
2. I could not lose my scruples overnight!

A average house take 6 months to build. Maybe 3 months from purchase, planning and approval. So 9 Months per project.

That guy is a builder/developer, not a property investor. An investor would be someone who either own the guy's company, pay for all the costs and wages and overtime to get those property and then build and sell... that guy won't be making the same return.

 

[pixel]

i don't think many people could point to many example of properties that gained 5 or 10 times its price in 10 years. I could point to CSL, Monadelphous, Cochlear, CBA ? as examples... that's not to say that i could have seen or predicted these... it's just to show that if you know what you're doing, you could make good return... even in property.

Oh Emm Gee!
If anyone could pick the 5 or 10 baggers and invest all free capital only into them, they might have a winning formula for the long-term. Sad fact is, however, that you also pick the Qantas, Telstras, OneTels - so it will even out to match more or less the All Ordinaries performance - which is very ordinary IMHO.
As Sir O quite correctly points out, there are cycles that suit the direct property market, and then there are cycles for the sharemarket; inside the sharemarket, there may even be times where one sector shines while another falls behind, and vice versa.
From personal experience, I can say that I've been lucky enough to pick a few such cycles to my benefit.
For example, I invested substantial amounts (between 30 and 70% of available funds) on a few occasions:
direct property between 1984 and 1989: +250%, ditto 1999 to 2006: +300%
shares (CRA-turned-RIO) bought October 1987 for $5.85; WAN bought IPO at $1, made only 500% because I preferred a mortgage-free PPOR.
BUT... Superfunds are only allowed to invest "conservatively" and must be diversified; hence they followed more or less the average and, like most others, mine would've gone backwards in 2008 had I not gone 90%+ cash in October-November 2007. I still consider that sheer dumb luck, based on a hunch that "the charts looked awful".

For a beginner, such as the OP clearly is, picking the budding 5-or-10 baggers would definitely be a pipe dream. Suggesting to him/her anything but a broadly diversified approach must be considered irresponsible advice. (Not that anybody here at ASF would be in a position to give advice anyway.) Committing significant amounts of capital to ANY investment class requires at least some basic understanding of the respective classes' economic cycle.

DYOR.

PS on the subject of multi-baggers: In 1999/2000, a mate of mine formed a correct opinion of Pilbara Mines, effectively at the bottom of their cycle. He even borrowed some money to buy $200k worth at 20c. When they hit $5, I asked would he take profit soon? "No - they'll go to $20 no sweat!" At least he was smart enough to sell a few so he could pay back the amount he'd borrowed. But even that took some "intervention" from his wife.
Of course, the bubble burst, and they fell back to nothing. To make matters worse, poor bugger lost his job soon after...

 

[CanOz]

Bless you Pixel....:bowdown::horse:

 

[burglar]

A average house take 6 months to build. Maybe 3 months from purchase, planning and approval. So 9 Months per project.

That guy is a builder/developer, not a property investor. An investor would be someone who either own the guy's company, pay for all the costs and wages and overtime to get those property and then build and sell... that guy won't be making the same return.

He is a money maker!
He is real!!
I am watching this unfold!!!

Ask me how much bank interest he paid on $300k property he purchased before Christmas.
Zip, zilch, zero, til property settlement in mid April.

Ask me when he did his planning and approvals.
During that same time.


Disbelief is your right, I'll say no more!