In fact we would all be fools if we thought we could.
Perhaps the two biggest signs of a boom are:
- When the price of any asset rises very quickly
- When the masses are all getting excited about something “hot” and all piling in.
Gold rush mentality
I well remember a person from the past who literally had “property fever” in 2006 and 2007.
My wife had heard of a potential property bargain and happened to mention it to him on the street. She said his eyes rolled and it was as if he was possessed. She concluded he had “gold fever”.
The herd was out buying property in 2006 and 2007 and he was leading the charge. He was heavily into geared property, but not long after the 2009 crunch, he suddenly left town.
He didn’t do the opposite of what the herd was doing. In fact he was a “flashing sign” for those looking for the warning signs of an unsustainable boom.
The West Coast
I have seen gold fever in the West Coast of the South Island at the whitebait season - their eyes roll and at up to $100 for a kilo of whitebait, you can see why.
They are great people, very friendly too, but their gold fever is a fascinating human condition to observe. Go there in September or October and enjoy their fabulous hospitality, the whitebait of course, and observe the gold fever first hand. Great fun and quite enchanting.
Remember tulip bulbs, they we all the rage in Holland and elsewhere, but the boom and riches did not eventuate.
Ostrich Eggs @ $4,000 each
Another fad that came to very little. The only people who made any money were those who (cleverly) promoted the eggs, and then got out early.
Kiwifruit in the 80’s
They say in Kerikeri “how do you make a small fortune in Kiwifruit ? Start with a large fortune”.
Many only survived by subdividing off land and selling it to keep going.
Many people convinced themselves that gold was the thing to have in 2010. Even though most were not economists, they felt the world must surely collapse when the US started to print money.
Gold rose to $1800 and is now back around $1250. Ouch, someone lost some money.
Fine to have some, but to take a big position is a big gamble.
In 2009 global shares were well out of favour, and avoided by the herd - they did not look “hot”. However they have risen by about 50% since 2009 (in NZ$ terms). A classic example of doing the opposite to the herd.
The Millionaire Makers
A very big organisation in Australia from 2005 to 2007 was known as the “millionaire maker”.
They had advisers on huge commissions running around going crazy, and their clients were making 30% , 40% , 50% very quickly.
But it all fell apart in 2009, and very few of their millionaires were left standing. Now the “millionaire makers” have been ordered to go back to the clients by ASIC to clean up the mess.
ASIC is the Australian financial watchdog.
Learn from the past
If we don’t learn from the past, we are destined to repeat it.
The Key Indicators
- look out when the price of an asset rises very quickly
- look out when the masses are getting all excited about something “hot” and all piling in.
Readers are welcome to email me with their comments & additions to such a checklist. More next week.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
His second book “The Great NZ Work, Money & Retirement Puzzle” is now available.
You can buy it on line at www.acfs.co.nz
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge.