Let us go back to that basic mantra: Buy low, sell high. It forms the rock upon which all investments should rest.
Let me also remind you that you make your money when you buy. In other words, if you buy well, all should be well. Buy at the wrong time, and you will suffer.
Most people sold their stocks in the 2008-9 crash. Oops! You sell before a crash. And you certainly shouldn’t be in stocks now. What you should do is welcome a crash, and watch what happens. Wait for a bottom to be established, and then buy in.
How does it work with stocks?
Simple. If you like a particular business, check its stock price after a crash. Monitor that price for a while. If all is quiet, that could well be the time to buy. After a crash in price the dividend will increase significantly. If the stock price halves, the annual dividend will double because you can effectively buy twice as many shares for the same money. In short, buying after a crash is a good ploy so long as the stock is also a good business.
Look at the stock market long term charts. After a serious crash has always been the right time to buy. We are at the beginning of a crash right now. It might take some time for the bottom to be in, after all, this crash is only just starting, but look back to 2009 and see what happened for the next 15 years. Idiots sold. Clever people sold before the crash and bought in again after the crash fallout had settled, and there were plenty of warnings.
Surprise, surprise, things are just the same with real estate. The latest mega crash was at the end of the eighties in the UK and the US. If you look at the charts you will see insane rises into the stratosphere before the dive down. There is no way that rise could last. (And that is what is happening now. Take a look below.)
I spent six months screaming to my clients to sell. Most didn’t want to. It took me six months of threats to get my friend Gerry to sell his property. Even then he didn’t want to, but a month after he’d banked the money from the sale he was still trying to prove me wrong, but got a big shock.
He rang me up about six weeks after the sale. “I’ve been ringing round the agents. It’s most odd. They all say everything has gone very quiet.”
When the selling starts it quickly turns into a crash. The interesting thing with real estate is that you usually have a couple of years when the market is very quiet, suffering from shock, before the banks will start to lend again. That’s when you buy, or preferably just before.
If you want to know how I judged that crash you need to buy my book on real estate. I go through the maths and the theory in great detail. There will be another crash. Maybe we are just about to enter it. If so, give it a couple of years to settle, and then move in.
So what is the market currently telling you?
Bank borrowing has gone very quiet. That’s the first sign of trouble ahead.
Next you watch the auction index, which is something I started to use decades ago. It’s very simple to use. Check auction results. It’s perfectly normal for 5% to 10% of properties not to sell on the day. What you are looking for is a rise in those failures. Houses fail to sell when the bids dont reach their reserve price. The more that figure rises, the more overpriced the market is, and is therefore due for a fall. If the figures go past 20% of properties not selling you know there is a full scale rout in the market. But ideally you need to sell well before that. I sell when there is a mad dash for a top.
See what is happening now. Is this the beginning of a crash? Looks like it may well be. Long sustained rise, then sudden dash for a top, then bank lending contracts and market prices start a sudden fall.
There is also the Affordability Index, which I invented when I was at college, and with the help of my tutor I managed to sell it to the Cheltenham Building Society.
Here is a screenshot of the figures for 2017, which is taken from the latest edition of my book.
You will find the Affordability Index is rather unwieldy, and has different crisis levels depending on where the property is in the country. The level in Scotland is way different from the level in South-East England.
To understand how this index works once again you would need to buy a copy of my book on real estate. The Ultimate Real Estate Guide. There is a link at the bottom of this text. And it is listed in the show notes.
I will also analyse this chart in the next blog because it says rather a lot of interesting things if you know what to look for.
At the moment there is a distinct move south across Western Europe. Lack of energy security is leading to an exodus of people from Northern Europe as they find energy costs extortionate. This is reviving the housing markets of Southern Europe.
I am doing particularly well in Southern Portugal where house prices have been steadily rising for the past few years. The latest annual rise is listed at 13%. There should be similar rises in Spain, and, to a lesser extent, in Italy as well. How long this will continue is unclear.
The real problem with trying to work out what is likely to happen next is that whatever is likely to happen is not necessarily rational. After all, what is the sense in the EU and the UK threatening war with Russia? What for? If those countries cant even keep out illegal immigrants, how are they going to frighten the Russian army? People like Starmer and Von per Leyen should either be in jail or in a psychiatric hospital. None of the Western European countries have credible armies or a stockpile of munitions, neither do they have the money to pay for such absurdities, when there is no threat. We live in a fantasy world. It is seriously difficult trying to second guess irrational moves.
Uk site: https://www.amazon.co.uk/dp/B07D3ZW8D2
USA site: https://www.amazon.com/dp/B07D3ZW8D2
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