Don't let experts' bear fear stop you from making money: Peter Switzer

The bears are out! Not literally, but in terms of investing in property, shares and bonds, according to a gloomy scenario projected by some experts. 

Recently, Deloitte economist Chris Richardson said that property may become the worst investment in the next few decades because of the oversupply of apartments. 

This comes close on the heels of the RBA’s warning that inner city apartment prices could fall due to an oversupply and news that leading super fund managers are pulling out of shares. 

But Peter Switzer says the paranoia might be overstated and experts can get it wrong sometimes. Smart investing is the key, he says in his Switzer blog. 

So what are the fund managers doing by increasing their cash holdings? Are they investing in bonds?

The bond market is “said to be on death row, with a possible bond market implosion talked about”, wrote Switzer.

Deloitte’s Richardson’s words carry a lot of weight because of the oversupply problem and the end of low interest rates, which have driven property prices sky-high, are a recipe for a fall in prices. 

In such a case, it makes sense to be wary of paying top dollar for apartments now, however, there could be great buying in a year’s time, commented Switzer.

“Apartment prices can fall in Melbourne, Brisbane and Sydney, and in that order, from biggest to smallest drops," he wrote.

"However, if you bought your apartment five years ago, you could be well in the money, even with a decent fall.

“Right now in Melbourne, Docklands apartments are seeing prices slump but in East Melbourne, they’re still charging like wild bulls.

“People forget that NSW’s property prices were flat for 10 years before the boom of the last three-four years."

He prefers areas like Paddington (Paddo) in Sydney and Albert Park in Melbourne, which, according to him, have limited supply and the chance of a profit from property is good even if the market heads south. Quality areas hold their value because supply is limited and demand is always there, though it too ebbs and flows.

“If you bought this weekend, you might feel like you’ve bought badly for say five years but in 10 years you will prove Chris wrong.

"It depends on where you buy, what you buy, when you buy and all the other smart things to know when investing in anything.”

On shares, fund managers might be dumping BHP shares they bought for $15 earlier this year and which are $22.64 now. That’s still a 50% profit, so it makes good sense to take profits, says Switzer. 

“I bet they’re not selling their CBA shares they bought in 2008 for $28 because the yield is 15% plus franking!

“Timing can determine your ability to make money but you can also make money by buying great assets and holding them.

“We bought a place in Paddo for $54,000 in 1979 and sold it around 1996 for close to $800,000 with a few renovations thrown in. That was a great investment and I bet we lost some of our gain in the 1990-91 recession but we weren’t sellers then, so it didn’t matter.

“When we sold that property we were debt free.”

The surge in property markets means there will be pullbacks and some flatter price periods, while for shares, the pullback could be shorter. Also, fund managers who are taking profits because of global issues such as the US elections, OPEC, an Italian referendum and a possible US interest rate rise in December, may be back soon.

“Smarties make great money by being contrarian and that’s why Warren Buffett recommends you be fearful when others are greedy and vice versa but that takes guts and as the old saying goes — no guts no glory,” said Switzer.

“However, it doesn’t have to be all risky stuff. You can buy great assets and simply hold them and if they pay a nice income — rent, interest or dividends — along the way, you can make money. Don't let the experts and media headlines stop you from making money.”