Five Investing lessons you never want to forget

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Michael Yardney

2013 is turning out to be a good year for property, the cycle is moving on and as growth returns to our property markets memories of the last few difficult years will fade.

 

However, it would be a pity to have lived through the challenging times we all experienced in the last few years without learning some lessons so that we are not destined to repeat the pain.

 

So what did you learn from the downturn?

 

Probably the most important lesson we can all learn is to never get too carried away when the market is booming or too disenchanted during property slumps. Letting your emotions drive your investments is a sure-fire way to disaster.

 

To ensure you never get caught again, let’s look at 5 big lessons from the last few years.

 

Lesson 1. Neither booms nor busts last forever
During a boom everyone is optimistic and expects the good times to last forever, just as we lose our confidence during a downturn. Our property market behaves cyclically and each boom sets us up for the next downturn, just as each downturn paves the way for the next boom.

Let’s face it…while the news is much more positive today, we know that over the next few years the buoyant market conditions will be followed by a property bust and then another boom. And over the next decade or so we’ll probably have a recession and we’ll most likely have another depression one day.

The lesson from all this is that even as you take advantage of our rising property  markets, get prepared for the next phase of the property cycle. During the last cycle, most investors didn’t really have their downside covered or their upsides maximized.

 

Lesson 2 – Beware of Doomsayers.

As long as I have been investing, and that’s close to 40 years now, I remember hearing people with excuses why property prices will stop rising, or even worse, why property values will plummet. However in that time, well located properties have doubled in value every 8 to 10 years.

 

Fear is a very powerful emotion, and one that the media used to grab our attention. Sadly some people miss out on the opportunity to develop their own financial independence because they listen to the messages of those who want to deflate the financial dreams of their fellow Australians.

 

Lesson 3 – Follow a System

Smart investors follow a system to take the emotion out of their decisions and ensure they don’t speculate. This may be boring, but it’s profitable. Let’s be honest, almost anyone can make money during a property boom because the market covers up most mistakes. But many investors without a system found themselves in financial trouble when the market turned.

 

Warren Buffet said it succinctly: “You only find out who is swimming naked when the tide goes out.” In other words, if you aren’t following a system that works in all market conditions you will be caught naked when the market changes.

 

If you prefer to have consistent profits and reduced risk, follow a proven system. Make your investing boring, so the rest of your life can be exciting.

 

t-family: ‘Arial’,’sans

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