A pretty tidy figure, but too few seem to manage it. Why do Kiwis like property, but tend to dislike shares?
Why do people often end up with a poor experience when investing in shares ?
Warren Buffett recently cited a 400 acre farm near Omaha, Nebraska, that he has owned since 1986, to caution individuals against frequent buying and selling of shares.
The farm has quadrupled in value since he bought it in 1986, some 28 years ago.
Imagine holding the same shares for 28 years!
“Some people can sit quietly for decades when they own a farm or house, but all too often become frenetic when they own shares and are exposed to a stream of share market news. For these investors, liquidity - the benefit of shares - that they can be turned into cash easily – becomes a curse.
If a fellow with a farm bordering my property yelled out a price every day to me (just like the share market does) at which he would either buy my farm, or sell me his - and those prices varied widely over short periods of time depending on his mental state - I could only benefit.
If his daily price was ridiculously low, and I had some spare cash, I would buy his farm.
If the number he yelled was absurdly high, I could either sell to him or just go on farming.
That’s not how share market investors react, though. Often they let the impulsive and irrational behaviour of other share market investors cause them to behave irrationally.
Because there is so much chatter about markets, the economy, interest rates, price behaviour of shares, etc., they to listen to pundits – the same people sit quietly on property for years, but overreact with shares and make short term buys and sells based on fear and greed.”
Time & Discipline or Fear & Greed ?
Investing in shares is all about time and discipline, but what gets in the way is greed - buying too high - or fear - selling out when the market is down.
As Warren Buffett says, we rarely look at the value of our their properties on a day-to-day or week-to-week basis. If property does sag, we usually say “we will just sit tight till it comes right.” And we do, more often than not holding on for 10 years and more.
If we applied the same thinking to shares, we would be more successful – perhaps dramatically so.
But my Uncle Joe lost heaps in the “87 crash
The 1987 crash was a major event in NZ, but offshore markets recovered fully within a few months
So why did Uncle Joe lose so much ? Because he was not diversified - he only held NZ shares.
Trying to buy hot stuff
We must diversify on and offshore.
We must be patient and disciplined.
Ideally we will own quality bonds, property and shares.
Then we must largely ignore market blah blah, and rebalance from time to time.
And if we kept doing that for 28 years, we might be stunned at the growth in value.
A big thanks to Warren Buffet who has stated the case so well.
Supplied by Alan Clarke, financial & retirement adviser, & author. He also writes regular articles for the media and on line.
Alan is an independent authorised financial adviser (AFA) FSP26532
His disclosure statement is available on request and free of charge.