When Forbes magazine asked the worlds greatest investor, Warren Buffett, "How do you contemplate the current stock market?" he answered "Like an oversexed guy in a harem – this is the time to start investing."
He said this in an interview conducted 39 years ago (1974). To get a sense of what was happening in the market at the time, see the chart reproduced below. It is the Dow Jones Industrial Average (an index of large public companies in the USA) from 1971 to 2012:
Note that the low point of the stock market occured at the time Buffett made his now famous comment.
For a long, long time, we at Tycoon System have shared our philosophy of buying income producing assets at keen prices. This can be done in various ways:
- When the market crashes, this often leads to an overshoot in the reduction in prices of high quality investment property. The value remains the same.
- Buying below market value by helping owners who need to liquidate a property quickly.
- Buying a property at market value, improving it and adding more value than the cost of the improvements. For example buying a building for £200k and investing £50k in refurbishment to create 4 studio flats worth £80k each.
Running the Tycoons community gives me a valuable insight into market conditions, investor confidence, availability of deals and other valuable long term market indicators. Lets examine some data:
- Buy to let borrowing as a percentage of total borrowing against UK property has more than doubled since 2009 (see chart below)
- Economists generally agree that inflation is largely due to the increase in the money supply. During high inflationary periods, you should own assets that at least keep pace with inflation which house prices generally do http://www.investopedia.com/ask/answers/correlation-inflation-houses.asp#axzz2KmJvRPDD and see http://monevator.com/historical-uk-house-prices/. You can brush up on inflation here http://monevator.com/stop-inflation/
- As the general economic outlook worsens and interest rates begin to rise, expect to see an increase in the rate of repossession and other forced sales of properties. This presents an opportunity for investors to help people who need to liquidate fast in order to avoid repossession, to provide cash for other more important life events and to quickly downsize to a more affordable property.
- Our 'Deals Detective' software system, accessible through this site (only available to beta testers at the moment) sources repossessed properties, properties needing work, and other opportunities for investors. I can see over 100,000 such opportunities across the UK at the present time which means investors have way more deals availableto them than they can buy.
- Mortgages for first time buyers are still difficult to obtain although this is beginning to change http://www.guardian.co.uk/money/2013/feb/12/first-time-buyer-mortgages.
Overall I would say that the future is very bright for property investors at the moment and we should be taking advantage of the many very good opportunities to invest capital at high rates of return.
Am I saying you should put all your money into property. No.
Am I saying that is property the 'best' investment. No.
I am trying to help people who want to protect (and grow) their capital over the long term to think about purchasing property with an adequate margin of safety from the beginning. Over the long term this can prove to be a lucrative way to combat the ravages of inflation and grow your pension pot too.
If you have any comments or suggestions feel free to let me know.
By Parmdeep Vadesha