The Herd Mentality and Counter-cyclical Investing

Published: 10th November 2008
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It seems every time we read a newspaper or watch television we are bombarded with negative sentiment.

Not for one minute am I ignoring the current change of season. Rather, it is a timely reminder to all property investors, and would-be property investors, of the need for expert guidance and support. High-quality guidance and support is available to all Club members.

The media would have us believe we are in a major period of doom and gloom'real estate investing has become less sexy over recent years. We should pause and remember that market volatility, high interest rates, and negative media portrayal should not distract investors from their wealth-creation plans.

The Real Estate Institute of Australia has stated that median prices in Melbourne, Sydney, Perth, Brisbane and Darwin have, on average, increased by 8% to 9% a year since 1980.

It is timely to revisit the aims of The Investors Club and The Kevin Young Retirement Plan, which is and always has been based on a seven to ten year timeline. It does not depend on continuous periods of rapidly increasing property prices.

The herd mentality is evident from the claims of a 'buyers market' in many capital cities'presenting ideal buying opportunities for informed investors who work counter-cyclical to the herd. Our researchers are currently finding more and more enthusiastic vendors as a direct result of mum and dad investors temporarily sitting on the property sidelines.

The herd mentality is an interesting phenomenon. I distinctly remember the sexiness of shares in the period leading up to the stock market crash of 1987 and again late last year. The share market was performing amazing tricks and large numbers of get-rich-quick hopefuls entered the market very late in the cycle only to lose equity during the downturn.

All because they followed the herd. Similar scenarios played out in many property markets in our major cities in recent years; many investors who entered the Sydney market in 2002'03 are now sitting on limited equity.

I am sure some who invested in Western Australian in 2006 and 2007 will have similar experiences. In both cases, The Investors Club was not recommending either of these areas as being suitable for investors in the period immediately leading up to the peak of the market.Counter-cyclical investors often have clear long-term goals and are more likely to enjoy greater success than the herd.

Remember, a clear focus on your goals, a steady hand at the tiller, a commitment to the achievement of your goals, and access to quality support and guidance are crucial for success. The media hype seems to overlook this very important information.

Our housing markets are under-supplied and our situation is different from the US and UK markets'our rents are increasing in leaps and bounds and our economy is still performing well and unemployment rates are low.

I sometimes wonder if John Howard was right when he said we have never had it so good. Maybe the halcyon days have given many mums and dads a distorted view of long-term reality. Don't be seduced by the populist media.
This article brought to you by Kevin Young and The Investor's Club.

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