I often wonder if we are about to witness the end of the age of entitlements. Investment bankers believe they are entitled to earn millions before they turn 30. Hedge fund managers believe they are entited to earn "2/20". The Gen Ys believe they are the complete package right from day 1.
To be perfectly fair, a lot of people, in my opinion, are fully justified in what they have achieved. Macquarie Bank/Nicholas Moore deserves to be so successful because they created the entire infrastructure fund concept. Regardless of what we think, its Sydney Airport deal was ingenious. On the other hand, the likes of Babcock and Allco do not "deserve" to be as successful because they simply copy the concept. The flip side is a lot of investment bankers do not deserve to be so highly paid because they simply copy the one "play book" again and again. Put it very simply, one suspect a lot of bankers are trained to be very good with Powerpoint and Excel spreadsheets ONLY. In hindsight, it makes you wonder why did Macquarie choose to go after Qantas and London Stock Exchange ?
In the funds management industry, apparently 90% of funds lag their benchmarks. Why should a fund manager deserve to be paid his bonus (let's say he out-performs his benchmark by 5% but the benchmark is down 50% i.e. a lot of unit holders still got wiped out) ?
In my time, I have read a lot of investment books and I have the privilege of observing closely a few good/great investors in full flight. I have discovered the key to the stock market kingdom !!! Shhhhhhhhhhhh.... To be successful in the stock market, it comes down to psychology and luck. The stock market is a very efficient discounting machine. The big gains are typically made when the environment is utterly dismal. This explains why psychology is a critical ingredient. The next part is luck. After all these years, if I have to choose between being good or being lucky, I would prefer to be lucky because being good doesn't guarantee the stocks will work. The key is how do you make sure you are consistently lucky ? It comes down to hardwork and being half intelligent and sensible. These are the "ingredients" you need to be at the right place at the right time more often than not.
What does this post have to do with the Sydney property market ? I often ask myself do I deserve to own a decent place in LNS ? I have been asking myself this question a lot lately because prices haven't really changed and the quest just seems as remote as ever. A few ideas here:
a) I suspect I have a more comprehensive framework than a lot of folks out there. My idea that property prices may fall is different from consensus. I am hopeful that my bear arguments are more logical (but may well not be right) than the simple bull arguments (supply and demand + property prices have always gone up).
b) I am prepared to buy if and when prices collapse. In my personal experience, my best stocks have been the ones that everyone hates. I suspect the day I buy the house people will be telling me you are truly mad.....
c) My better half was telling me that we have seen over 100-150 houses over the past 2-3 years. She has even compiled this monster spreadsheet of all the property transactions in the LNS since 2006. I suspect now we just have to make sure we work hard in order to be lucky. It is quite likely we will see another 100 houses and turn up at a lot of auctions. And then one day, we will find a place that we like and the vendor will struggle to find other interested parties. Then things will get interesting.
Nevertheless, there is a very good chance that my framework may end up to be flawed. And then the LNS property market will keep on going up and up - just look at Wollstonecraft. Afterall, the age of entitlements is coming to an end and no one, including yours truly, deserves any easy pickings. See the similarity with the stock market here ? Being good will only get you so far. One does need a lot of luck as well :)
Time will tell.
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The other ingredient is time. If you can hang on while others around you are being wiped out - there will be bargains to be had after the dust settles.
ReplyDeleteAnd speaking of MAP - http://business.smh.com.au/business/hard-landing-ahead-20090120-7l8y.html
In my opinion, the Macquarie (debt) model is and was unsustainable, and I would not be surprised if they went the way of Allco and Babcock.
MQG continue to resist asset writedowns in the last few quarters hoping conditions would improve. Many of their satellite funds' assets are still valued at pre-credit crisis values and it is only a matter of time before they come down to more realistic levels - thus reducing 'management' fees to the mothership.
I have "heard" how Macquarie used the government "guarantee" a few months ago to refinance a reasonable chunk of its debts in Europe. They are smart and they should be able to survive this mess. However, I wouldn't want to guess what the business will look like in 2012.
ReplyDeleteThe beauty of the business is its best assets walk out the door every night. It works during bad times as well.
A big question affecting the property market is how many people will be laid off at all the investment banks before all is said and done ? I have heard numbers as high as 30-40%.
Time will tell.