Timing the market with Marty Maher

Asset markets, such as property markets and the share market, are fluctuating beasts that ebb and flow in their performance over time.

The easiest way to understand why this occurs is to look at the herd instincts of the human psyche. Basically, everyone does what everyone else does. The amount of physical real estate or the numbers of total shares in existence do not fluctuate dramatically – it is the market participants (buyers or sellers) willingness to engage that fluctuates.

FOMO (fear of missing out) is a major part of the Australian mindset and “keeping up with the Joneses” is a major goal. So when part of the herd starts buying and selling the rest of the herd considers it also. It is a simple analogy of what are often complex drivers, but it’s basically what happens.

“Timing the market” is a saying that means buying just as the asset markets are starting to improve in their performance and/or selling at their peak before some event (usually interest rate increases or an international economic event like the GFC) occurs to change the sentiment of the market. This timing of the market has always been easily visible in the share market because of the liquid nature of the trading, but in real estate terms it is much less so and can often only be seen in hindsight.

Interest rate movements have become shallower over the past 20 years due to tighter management by the Reserve Bank. The opportunity to speculate in the real estate market (buy and sell in the same market cycle) has become more difficult because the property market rises and falls are also shallower. Add to this the costs of buying and selling including stamp duty, marketing and commission and even capital gains tax on investment properties and it makes it difficult to make a short term profit.

If you want to “time the market” in real estate, the best thing is to take a two-step approach.

The first step is easy. Just accept that property is a stable investment but it also takes longer to improve in value, so therefore a longer
timeline is required.

The second is much harder and that is to take a contrarian view of the market and resist your herd instincts. Buy when the herd needs to sell and sell when the herd is keen to buy. It is emotionally more difficult than you think as the herd always thinks it is right and will tell you at every opportunity.

If Great Pcean Properties can be of any assistance please do not hesitate to call.

Marty Maher – Great Ocean Properties.