Investment psychology

Today at work, I was reminded that making money in the market is just very hard work. If you care about your clients, fund management is one of the most stressful jobs out there - 24X7 non-stop pressure. To be successful in running money, a lot comes down to psychology as well. Outperformance comes from courage in the face of uncertainties. One needs to be a contrarian.

Yet, it is the exact opposite when it comes to the Sydney property market. It is one of the most popular "trades" or "investments" out there. Today, I saw this blog on Domain. The MD of a major real estate agent argues that, because stock markets have collapsed everywhere, the property market should perform that little bit better as funds get diverted into properties in Australia.

How strange indeed !!! In fact, the correct response (when it comes to making money) is to allocate more funds into the asset class that has fallen. It is the harder decision (in terms of the usual feel good factors) but it is the right decision. How much upside is there from an asset class that hasn't fallen much at all (vs. stocks that have fallen by over 50% in some cases) ?

By the way, don't forget that properties are illiquid assets. Normally, illiquidity translates into discount on the asset. In contrast, Sydney properties are priced at significant premium.

I have another dilemma.......Instead of buying a property and earn 4-5% yield, in some extreme cases, I can buy small stocks trading at 1-4X PE (growing and balance sheet is bullet proof i.e. market cap = cash on hand). As long as these companies are not fraudulent, I figure I stand to make more money buying these stocks long term vs. buying a house in Sydney.

The Sydney property market doesn't feel rational at all.