Tuesday, 23 October 2012

Are the Media your investment adviser? Are you sure?

A lot of people get their investment advice from the Media by default and that worries me and should worry you.
Sometimes it is because we believe what we read and sometimes because the short term nature of news causes us to have doubt about the long term viability of property and hence we don't do anything for fear of making a mistake.
Believe me they don't write articles to help anyone make wise investment decisions. They write articles and produce the nightly News, to sell advertising.

The investment arena is full of misinformation so to do my part to help clarify it, here are some things I think investors should never forget when it comes to the Media.

The media have a huge disadvantage...
Unlike me, where I can write an article when there is something worth writing about, the Media have to produce something worth reading/talking about every single day.

Can you imagine how effective a headline like “Nothing to report today… situation normal” would be at selling advertising. It probably wouldn’t sell many papers... or get you to watch the nightly news. (Actually it probably would if someone did it, just once, but beyond that, probably not).

So the problem for the Media is they have to produce something sensational to get your attention, even if there is nothing sensational happening that day. As a consequence a slight rise in an investment market becomes the beginnings of a boom or a slight fall becomes “the bubble is about to burst”.

For the Media there is only “boom or bust”, there is no in between. And yet, the reality is 90% of the time is neither boom nor bust.

Out of the last 112 years of residential property investment (that we have records of), only 11 years have had a negative return. As an investment, I am sure you would agree, that's pretty good!

The 24-hour news cycle is built for people who can’t see more than 24 hours ahead. That’s why a long, slow, but very important rise is rarely mentioned.

Then there are the Economists who want to see their name in lights or maybe want to take the focus off the fact that they failed to predict the GFC, so they declare, "The Real Estate Bubble is about to Burst” and it becomes a MUST READ - BREAKING NEWS. That was 4 years ago and it was going to be a drop of 40% in the next 12 months. We saw a rise of over 20% in the 12 months following that comment.
Or recently "The Mining Boom is Over"...
Not a month earlier they were reporting that the Mining Boom was here for the next 30 years.
So sorry, but they have no credibility with me.
  • Non-existent ie ingnore it all, don't listen and don't read it. (there are now many people that feel this way) Put it in the Fiction Section with Lance Armstrong's book.
  • OR
  • Something that incrementally help you understand how the world works but rarely compels you into action.
After all, how many of the items that we see every day will be important to investors in 5 years time?
Sure, short term, the articles may be useful for employees, customers, suppliers and other interested parties for whom the short term does have relevance, for jobs, sales orders and deliveries etc. But for investors, they are at best irrelevant and at worst a distraction that leads to poor investment decisions.
A well known journalist Derek Thompson recently wrote:
I'ver written hundreds of articles about the economy in the last 2 years, But I think I could reduce those thousands of words to one sentence, : "Things got better slowly".
That's all you need to know. The rest was just noise.
For investment decisions on residential property you need to trust that property goes up in value while there is more demand than there is supply. When property stops going up our economy is in a really bad place and whatever you have invested in, will still be in a worse situation than property.
So look for properties that are in long term quality locations and buy as many as you can afford.

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