[Yonmon]

Brilliant post, highlighting the bubble psychology that applies to property just as much as shares. At the same time there are several big differences between shares and houses, including:
1. Houses are less liquid than shares
2. It's harder to hedge against falls in house prices than stock market falls
3. It's harder to go short on house prices than on shares

So, unless you put all your eggs into going long on a single share or share sector, shares are generally LESS RISKY than property! At the moment I'm generally long on shares, but will probably take out some hedging soon against a stock market crash/correction, probably primarily against NASDAQ; maybe FTSE and/or DJIA also. I'm also building up cash. I'd feel a lot less relaxed if I was heavily invested in property.

Someone mentioned commodities as the latest bubble. That is probably fair comment. It probably has some more momentum, as there are still supply constraints from the time when commodities prices hit rock bottom (you can't open new mines overnight). However, there will come a point when speculation pushes prices beyond a sustainable level, and prices will reverse. I think that will come quite a bit later than the reversal in property though.
It's all about timing- anyone buying property now is as daft as someone who went long on tech stocks at the zenith of their bubble. Patience WILL be rewarded!

[Van]

Don't know that commodities has yet become a bubble. A hot sector, certainly, and a couple of years into a bull market, but imo it only becomes a bubble when prices start to bear no relationship to earnings and the greater fool principle rears it's ugly head. At the moment the commodities sector is bullish but earnings in the sector underpin this. It's often said that for a bubble to form, there needs to at first be good fundamentals in place, which is what we have in commodities right now.

[andrew_uk]

The Masked Tulip, on Dec 28 2004, 09:03 PM, said:

An interesting post.

I was a contractor in a senior consultancy capacity when Telewest's shares were soaring. They had, or so they believed, cornered the market in a new interactive home shopping Internet service delivered by a set-top box.

They were selling this heavilly to the City and, whilst I was there, I saw them sell the service to all the big names - Barclays, Lloyds, Abbey National, numerous Building Societies, numerous high street retailers, etc, etc. The list was endless and the Sales people were raking in huge commissions both in cash and in shares.... and the project was on time and under budget due to a mix of dedicated permanent staff and contractors.

Then, for reasons still unknown, someone high up decided to get in Arthur 'Andy' Consulting. The permie staff turned up on morning in Woking to find that all their stuff had been pushed into plastic boxes and sat at their desks, complete with name sign, was an 'Andy' drone complete in blue suit. You would not believe how much Telewest were paying for these drones with many of them, IMPO, very inexperienced indeed. One of their senior guys argued that such a thing as a 'firewall' was not needed.

Anyhow, permies and contractors started leaving and drones grew in numbers. Suddenly, a project that was on time and under budget went over both time and budget. Next thing we know Telewest is suing for bankruptcy protection and in debt for billions. Funny that.

Some time later I was working for a US tech company whose shares went over 100 USD. When they started falling people in the company, so brainwashed into the company culture, tok out loans to buy and many bought ALL THE WAY down to 15 bucks... Some people in London lost about a million, some people in the US invoked their shares but did not cash them in so by the time they cashed them in they had fallen to a fraction... yet they still owed the taxman money for the time at which they had invoked them... and ended up owing MILLIONS in tax! The peopel at the top are all worth hundreds of millions and even billions though... makes ya think...
<{POST_SNAPBACK}>

The main reason that people in Telewest thought it was going to go up was the so called "insider knowledge" that NTL and Telewest were going to combine. Well it's true they will probably in the next 2-3 years but at the time it was thought to be imminent. The plan was just much longer term. basically
1) Build the infrastructure through massive levels of debt, funded by bond holders and share sales.
2) Pump up the share price to keep the money flowing in to build the rest of the infrastructure.
3) Then when realisation dawns of the massive debts holding back any hope of dividend payouts the share price tumbles.
4) At the bottom split the company so 99% goes to the bond holders and 1% to investors.
5) Move from the london stock exchange to an American one.
-> We are at this point but it's not a bad thing.
Share holders got shafted but we've now got a profitable cable company with an excellent network. It's good for the UK. Most telewest debt was changed into shares that the bond holders now have.

Next steps..
6) Combine NTL and Telewest. Unsure which will buy out which or if it'll be a merger.
7) The enlarged company can handle NTL's high debt levels and move forwards.

On a side note I worked for Andersen consulting for a while but in the bit that became Accenture. It's a strange company and they generally shaft everyone they dealt with. The team sat behind me worked out the costs to the client (outsourced) and some serious shenenigans went on. When it all went bad all records of the how the bills where calculated where destroyed.

[zzg113]

What happened to the share price after you sold DrB?

[zzg113]

Amazing. You managed to get out just before the peak. Also, look at the volume: 2 volume spikes when the price spiked, another one after the price fell from $45 to $15, and another when the price had gone to zero, all the volume spikes are around a year-end.

[andrew_uk]

In case anyone read the article...

I believe Telewest & NTL are now merged or very very close to it so in a way people where right they just didn't understand the debt that building a cable network requires.

I also think in years to come I'll repost this as........


The .Com Boom Vrs HP Boom Vrs Gold Boom

Tthink about 850$ gold in the 70's we'll hit $2,000 before falling back to $400.

[Rikk03]

Bull''s Advocate, on Dec 28 2004, 06:54 PM, said:

Share prices and house prices are not really that comparable though are they? Aren't share prices much more volatile and subject to different economic factors than house prices?

Also, isn't it a bit of a one-way bet to hold off buying a house because you believe that prices will fall significantly? No-one knows this will happen for sure - it's still just a bet.

Trick is to limit the risk. Where to put your money now is the key question. Speaking for my own position, I am looking to the new EU accession countries, Poland, Lithuania, Latvia, Hungry for capital growth and yield. Dispite their problems, (corruption, political instability etc) they will suffer less from any global property fall. Investment is pouring in at such a rate - infrastructure investment from the rest of the EU, China and Russia along with the US, - major business investment.

Unlike in the UK where people are borrowing heavily to afford property thus fueling UK boom, in these New accession countries finance is still difficult to get, thus the investment in property so far has been mostly by cash rich individuals; thus it should be protected somewhat from interest rate rises.

A friend of mine made the point that in times of recession, big business retreats back into their home territory. I however do not think this will happen to the same extent as in the past because of the low cost of labour in these countries - and the increased globalised state of these businesses will mean that they will cut jobs from regions with high costs certainly not from countries with high growth.

So in conclusion, investment in these new EU countries is relatively low risk compared to the potential gain especially when you consider the potential risk of investing elsewhere in the current global political and economical climate.

[Lionel Richtea]

DrBubb, on Jan 2 2005, 09:50 AM, said:

I was lucky, it must be said.

However, one of the things that encourages "luck" in trading is technical analysis. Some things that i have learned is that most market noves come in three upwaves, with the second upwave the most powerful, supported by volume increases.



The historical chart shows that the last upwave (3) came on much lighter volume, and once that volume was exhausted, the price reversed.

This isn't technical analysis, it's chartism.

How's that perfect storm playing out?

[Jason]

Buffer Bear, on Dec 28 2004, 04:36 PM, said:

Good post.

We are still the experiencing the mentality of greed/denial from the bull camp but this shan't last for much longer. Currently, I have two bets with friends that the market will fall at least 15% over the next 2 years. What great odds.

I'd 'double or quits' for the next two years if I were you!

[andrew_uk]

Hi All,
I thought I'd add an update.
I now KNOW we are the same as the dot com boom.

Where I work someone working at goods in on 12K was telling me about:

His retirement/investment property in Indian (bought off plan and still not finished but he does have pictures of various stages of building)
His investment property in Turkey (another off plan)
And how he's lined up to invest in a complex of flats in Bulgaria. (off plan again)

He's aiming for investments totalling 120K on a 12K salary managed by taking equity out of his own house. Best of all the investments aren't even built yet.

But the clincher was his attitude. He had zero fear as he saw it as a one way bet. Why, simple because everyone else is doing it and many people are even jealous of how big an investment he's got.

Yet when someone offered him a very high paid job helping to sell these investments he turned it down as it wasn't safe.

Andrew

[IamSpartacus]

andrew_uk, on Oct 23 2006, 10:13 PM, said:

His retirement/investment property in Indian (bought off plan and still not finished but he does have pictures of various stages of building)

Only Indian citizens and Non-Resident Indians can purchase property in India...

[GARCH]

IamSpartacus, on Oct 23 2006, 10:17 PM, said:

Only Indian citizens and Non-Resident Indians can purchase property in India...

You were turned down for the investment, right?

Hilarious anecdote.

[IamSpartacus]

GARCH, on Oct 24 2006, 11:02 PM, said:

You were turned down for the investment, right?

Hilarious anecdote.

Ummm... no. I was pointing out that either (A) his 'anecdote' is fictional or (B ) the guy is Indian in which case buying property in India isn't exactly crazy overseas speculation.

This post has been edited by IamSpartacus: 24 October 2006 - 10:09 PM

[Orbital]

Buffer Bear, on Dec 28 2004, 03:36 PM, said:

We are still the experiencing the mentality of greed/denial from the bull camp but this shan't last for much longer. Currently, I have two bets with friends that the market will fall at least 15% over the next 2 years. What great odds.

hehe this made me laugh! So here we are at the end of 2006! Funny thing is, people were saying this back in 2002 and even in 2000. I wonder if some people have been hanging on for half a decade waiting an waiting and have missed out on owning the home they wanted....

What strikes me is that people here seem to think a house is only an investment, yes it is, but it is also a home. Having been forced out of rental accommodation the security of being in control of my destiny is worth a big price - and I think other people do to. But there are some very odd anecdotes around, like the one in this thread about 2 oxford grads (as if that makes them property experts!) who sold to rent and bought again. Maybe they were looking for a new home and, like many, decided to rent for a bit to avoid annoying chains. Not everyone operates on greed!

Anyway, we could spend all day digging up old posts from people who swore blind a crash was coming in 2004, no wait 2005, no wait 2006, no wait 2007...? tbh who cares - I bought my place, through hard work, because I wanted a home, im sensible enough to ensure im not overstretched and my deposit protects me from negative equity (hopefully !). If prices drop it makes the next step easier but it will still be a step ahead of those waiting and waiting and waiting....

Whether prices go up or down, as long as my career keeps on track (no guarantee there ), my next place will be the 4/5 bed detached family home I want to provide for my misses and kids. Why hang around?

And im not sure shares are comparable to property, a share price is determined by a companies percieved future profitability - in time the company will either make lots of money to justify the price, or it wont. To me it seems like an objective measurable. A house cant be judged in the same way. Shares are investments, houses are investments to some, but also homes to many too.

This post has been edited by Orbital: 03 November 2006 - 03:43 PM

[backtoparents]

You deposit provides some protection the bank against negative equity should the owner fail to keep up repayments. Means they can sell at a lower price to recover any remaining debt.

I don't know anyone talking about a housing crash in 2000. That was .com fallout time.

I do remember renting a room in a house in 1996 where the building society couldn't repossess because they would lose money if they did. The owner, who had a portfolio of properties, had fled to the Russian Urals (at least that is what we told his creditors), and our rent was going straight to the bank to cover the mortgage interest payments until they could repossess. Essentially we were renting from the bank. Bit like getting an I/O mortgage at the moment I guess, without such a sizeable deposit to lose, transaction costs, surveys, insurance, etc.

btp