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Yip, I’m taking about those dudes who get ‘paid’ to lie around on the beach all day long, smoke a little weed, pick up all the hot women, and get a great tan… oh, pardon me, did I forget to mention…they also surf!

And before all the surfers out there get their hackles up…this ain’t an article criticising surfers – far from it.

In fact, it’s more written in envy – but let’s face it – many people out there have the perception that surfers don’t have much in the way of ambition or intellect.
Hopefully this article will change that viewpoint!

And houses..?

Maybe it’s me who’s smoking the good stuff? After all, what do houses, surfers, or your investments in the stock market have in common?

Let me explain…
Who would have thought that property was the best thing since sliced cheese way back in 2000?
In fact, from 2000 through 2006, house prices in South Africa rose by an average of 20% per year. You could do no wrong by buying property and selling off plan was all the rage.

Unfortunately it all came to a grinding halt towards the end of 2007 and now it seems (at least to me) as if you can’t give your property away.
What we experienced in those seven years was a boom in the housing cycle.
What caused it all to end? Quite probably a combination of factors:

  • Rising inflation
  • Rising interest rates as a result of rising inflation
  • The National Credit Act which limited the amount of money we can borrow
  • And in my personal opinion…not enough new entrants into the housing market caused simply by a lack of job creation (If we could create permanent work for the unemployed masses, we’d see a boom in the housing market like never before!).

From 2008 onwards we moved into the bottom end of the cycle (Bust) or what is commonly referred to as a buyer’s market. According to ABSA bank (April 2010 house price indices) we’re moving out of this cycle (but I for one will believe it when I see it).

The point I’m trying to make about houses is that they – like everything else – move through cycles.

If you had bought a home towards the end of the 2000/2007 boom era, you would have paid a hefty premium. Quite possibly – if you placed your home on the market today and wanted it sold quickly – you’d get less for it than what you paid!

So, my question to you now is: “simply because it’s worth less now than what you paid for it three years ago…is this a valid reason for putting it on the market calling it a poor investment?”

The reason I ask is because so many people use this reasoning when it comes to their stock market investments…but more on that later!

So what are your options if your home has lost value?

Option one:
You could put your home on the market and sell at a loss…big mistake, but if you’re financially strapped, this might be your only option!

Option two:
You hang in there and wait for the market to turn before selling.

…And if you considering buying a home?

You’ve got to be in the market to benefit from it, and as I said before…it’s a buyers market…but beware!

As Seth Godin so aptly put it…in a down market sellers are irrational.

He goes on to say: “When prices are rising then housing markets are efficient because so many people are bidding for the house causing the price to rise. But when there aren’t as many bidders, sellers don’t lower their prices accordingly. So the inventory lists at estate agent’s offices get longer and longer and it’s easy for a buyer to get lulled into believing that the prices being asked are the right prices because so many people are offering their homes at that price.”

So what’s the point I’m trying to make?

Just because the housing market is in the doldrums doesn’t mean that it’s a cr*ppy investment in the long term (although I’m saying that with a perverse sense of pleasure because way back at the height of the boom a lot of people were pointing out to me what a great investment property was compared to shares. Of course, they’re all dead quiet now!).

To be successful with property you need to understand that – like everything else – it moves in cycles and that there’s a right time to buy and a right time to sell!

Let’s get back to the surfers now…

These guys (and gals!) instinctively know that everything moves in cycles.
When next in Durban or Jeffreys Bay, take a moment to watch them.

Firstly, they know that in order to catch a great wave, they have to be in the game. That means that they have to be in the water – in the trough of the wave – and be alert.

Secondly, they need to anticipate the next potentially great wave and make a move in the direction of that wave as it gently starts to rise.

Third, they know that to score big-time, they must be on the crest of the wave! Their gains are made while riding the crest of the wave.

Fourth, it takes commitment to go out there and surf…have you seen the size of the teeth on some of the fish out there?

So what has all this to do with the stock market?

Client: “Lawrence, can you send me the surrender forms.”
Me: “Why?”
Client: “Ag, my investment hasn’t performed since I started it. I’ve put more money into it than it’s worth after five years!”
Me: “But you’ve got to compare it to houses…”

Truth of the matter is that – just like the surfer – you need to be in the market.

Secondly,
you need to keep your eyes and ears open and in touch with what’s going on around you.
Don’t be fooled into investing simply because some pundit on Bloomberg or CNN says the recession is ending and happy days are here again. We couldn’t trust them to foresee the market crash in 2008 so why should we trust them about any boom?

In the foreword to his book – Conquer the crash: You can survive and prosper in a deflationary depression – Robert R. Prechter Jr states that in order –

  • to be successful in life, or at least to learn something along the way, you have to think for yourself.

Ask yourself questions like:
Will the increase in electricity prices put pressure on big businesses ability to compete against other countries?
Does the current price earnings ratio reflect a fair price for the risk I’m taking?

Third,
am I getting out on a high (A sellers market) or on a low (A buyers market)? If you’re on a low then it makes sense to stay in the market…which brings us to something I’ve noticed!

Insurance companies, in my experience, have proven to be very inflexible when it comes to exiting fixed term endowments. As an endowment reaches maturity date they tend to convert your investment back into cash regardless of whether markets are up or down, and in so doing often realise a loss for you – the investor.

Far better, in my opinion, to be involved in unit trusts (or even endowments offered by unit trust companies) where you decide when to opt out of the investment!

Fourth,
it takes a commitment when it comes to investing. Some investors end up paying years and years towards an investment only to realise that they would have been in a better situation if they had stayed in cash.
You need to monitor your investments, at the very least, once a year. Keep track of how much you’ve invested and compare this to your fund values.

I hope you enjoyed this post whether you agree with my views or not.
Feel free to leave your thoughts by commenting below…

Kind regards,

The InsuranceFundi Team

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