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House Price Crash Forum
nohpc

Loss Is Good

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You can use houses or shares or any other investment for this analogy. Assume that nobody knows what will happen with the price of anything but over 30 years the nominal value is likely to rise much more than keeping money in the bank (although not necessarily keeping up with inflation).

Japanese investments would have been the exception to this rule but they were much more overvalued than any other investment of recent times. So much so that even after 90% drops their houses and stocks are still quite expensive (or certainly not cheap!).

When you buy your first (or second - but not last) home - if you are good with money and save a lot and haven't borrowed to the hilt and have decent equity - a massive collapse in prices is desirable to enable you to move up the ladder. Why is this concept so difficult to understand. People are happy to make 20% profit on their 100 grand property equalling 20 grand even though they want to now move to a 400 grand home which has gone up 20% also so 80 grand. A 50% loss on the value of their property would have "lost" them 50 grand but they would now save 200 grand on the 400 grand home. Seems simple.

Same goes for shares, commodities or anything else you like. I am feeling very financially shrewd at the moment having seen several short term investments of less than a year rise 30 - 70% and am 6 thousand pounds in profit. I have only been investing for 2 years (wish I knew at the beginning what I knew now) and am diversified with a variety of country/area specific ETFs, commodites etc. However, I have a wadge of cash to invest and I would rather the stock market crashed 50 -90% now, taking my investment down with it, thus enabling me to get much more bang for my buck. This is the early stages and I have 20 - 30 years to make money on my invesments so the time to buy beaten down stocks is now.

In saying this, I will not sell any of my long term holdings in anticipation of a crash as stated above, nobody knows what will happen. I would rather hold onto my shares and lose 50% + than sell them and see a ridiculous stock market boom happen. Same applies to my rental property in London. With renegade printing governments the future is very blurred.

So my advice is:

1) be very prudent with your money and save as much as you can

2) If you are young buy shares if you have long term cash that you don't need. Buy more if they drop. Keep doing this.

3) buy a property if you want to as long as you are not overborrowing and have plenty of equity or forsee plenty of equity in the near future due to earnings being high or likely to increase. If property crashes rejoice and buy your dream home with a tiny mortgage and live for tuppence for the rest of your life - leaving plenty of money for things like private school fees, holidays or whatever else you want.

4) if you make money on your shares or property - be glad that at least you didn't get left behind (you would have made nothing which is always worse) but regret that you will not be able to build your wealth as much had there being a crash allowing awesome opportunities (like buying property in 1995 or shares in March 2008)

Edited by nohpc

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As you say if you are young and have good equity in your house, falling prices are a boon, allowing you to trade up more cheaply.

I am fortunate to be in this position and am actively willing the market down to get a bargain. However, most of my peers are leveraged up to the nuts, so it'll be a disaster for them if prices crash and rates rise.

As for the long term view on shares, I am a little sceptical at the moment because if the world ends up doing a Japan for 20 years, that's a lot of money that will be lost. Another downturn in stocks in overdue, maybe once that is over it'll be time to invest.

Personally I'm a gold and silver enthusiast at the moment, that's where my spare cash is and it's made me some good money in the last 18 months.

As you say, renegade printing governments are making investment decisions much harder. However, I think we can count on them to carry on printing to service their debts, so that's why my money is on gold and silver.

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As for the long term view on shares, I am a little sceptical at the moment because if the world ends up doing a Japan for 20 years, that's a lot of money that will be lost.

As you say, renegade printing governments are making investment decisions much harder. However, I think we can count on them to carry on printing to service their debts, so that's why my money is on gold and silver.

Don't these views contradict each other? The top quote argues the liklihood of deflation (which would be bad for your gold too). The bottom argues for inflation which would be good for stocks.

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Don't these views contradict each other? The top quote argues the liklihood of deflation (which would be bad for your gold too). The bottom argues for inflation which would be good for stocks.

Fair point, rushed that post off in a bit of a hurry! I'll qualify my stance for you.

Japan has continued to deficit spend and pursue ZIRP, but their housing and stock markets have trended downwards regardless. Admittedly the additional US QE component (some will argue whether it is true money printing - but that aside) is causing capital to flow into stocks. However, in the shorter term I believe we are due a correction, simply due to the ridiculous valuations we are currently seeing. The thing to bear in mind is that during the inflation of the 1970's the stock market only returned average returns of 5% (for the whole decade), better than seeing inflation eat your savings though. Also in Zimbabwe, while stocks protected wealth better than money, no one came out of it richer than before the hyperinflation.

My view is that if inflation really starts to pick up, due to continued loose monetary policy, then at the end of the day, stocks will be a better place to be than cash and may even produce some profits. Obviously it depends on the stocks too, I imagine gold miners will do a hell of a lot better than banks in this situation, but generally when people talk of stocks they are referring to the index as a whole (as am I).

If the authorities abandon QE/money printing/loose monetary policy, we will, all in likelihood, trend into a deflationary scenario. However, that will only be temporarily bad for gold (if positive 'real' interest rates return). If interest rates rise it will drag the economy down, depressing the housing market, collapsing struggling businesses and create a second banking crisis as a result. Either they go back to printing when that happens, creating inflation and devaluing the currency , which is good for gold, or they hold the line and let the economy crash, which takes down the currency with it (your currency will weaken if your economy weakens), which is ultimately good for gold too. Win, win. It's all about all the debt that's out there.

The other thing to remember is that the Dollar, Sterling and Euro are all in trouble. So not only is it a good idea to hold gold if you live in the UK, but the weakness of the dollar and the euro are also bullish factors for gold, especially the dollar, as it is the world's reserve currency, if it collapses the global financial system is fecked, they'll only be one place left to turn at that point :).

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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