Food For Thought

[Time to raise the rents.]

I was reading an interesting book last week. Apparently, 85% to 90% of people investing in the futures market lose money. Many lose everything they invest. It is a zero sum game, so 10% to 15% of the market is taking the remainder for a ride.

The same zero sum game applies to the share market. For every winner, there's a loser. It didn't say, but lets for the sake of argument say that probably no more than 35% of stock market investors make money ( I reckon that's very generous BTW), which means the other 65% are taking the remainder for a ride. The proof is in the expanding profits of banks like Deutsche who really are raking it in and the massive salary packages of chief executives, not to mention their lack of liability when thier PLC's go under.

On the other hand, there's property. What percentage of people who buy property gain from the investment? I reckon it's got to be well over 90%, don't you?

And you wonder why property is so popular!

[Warwickshire Lad]

On the other hand, there's property. What percentage of people who buy property gain from the investment? I reckon it's got to be well over 90%, don't you?

I think that you show lack of foresight in knowing when it's the right time to quit.

[Time to raise the rents.]

I think that you show lack of foresight in knowing when it's the right time to quit.

Are you sure about that? If I'd have listened to this forum when I joined, I'd be about 500k worse off.

[Time to raise the rents.]

WRT to shares I always seem to be in the winning 35%, so I'm not going to complain.

Surely property is no different nowadays i.e. the sellers are taking the buyers for a ride.

You always win? Or you always win 35% of the time?

[JohnG]

Surely property is no different nowadays i.e. the sellers are taking the buyers for a ride.

That's just what I thought - http://news.bbc.co.uk/1/hi/business/4972220.stm

[Bearfacts]

Just for a second there TTRTR I thought you had something intelligent to say but then you go and spoil it all by saying something stupid like '90% of people benefit from property' I assume you mean HPI ?

The only ones who benefit from HPI are EAs, Lenders, solicitors, surveyors, the government, those trading down and yes unfortunatley Landlords ( that is while prices rise anyway). For the great majority of ordinary people who work for a living and want to trade up HPI is a disaster. If your house goes up 50% in value the next house you want to buy has also gone up 50% - net result you'll have to borrow much more money to make the same move- therefore you loose.

Needless to say the great unwashed aren't able to work this one out - they just get £ signs in their eyes when some idiot EA tells them their house has gone up in value and suffer delusions of wealth. Worse still are the plonkers who borrow against the supposed value of their property - you arent any more wealthy just more in debt. Its no different to the bank upping your credit card limit. Alas the masses are asses and the bank and the EAs etc take them to the cleaners time after time - they are the 10% who benefit from HPI at everyone elses expense and its mostly the coming generations ( like my children) who will have to work their entire lives just to afford a 25% share of a bedsit ( except of course the market is going to correct) so as people like you can sit on you fat arses and live a life of luxury for doing precisely bugger all.

The property market is not subject to some piece of economic magic whereby money grows on trees ... for every 'winner there's a loser' and yes the market goes up and it also goes down - thats when its payback time and happily its just around the corner.

[Time to raise the rents.]

Isn't it interesting that if a broker sells you shares, there is a reasonable chance that the broker is betting against you. Many larger brokers will sell you shares that they've borrowed themselves, shorting the stock off to you & winning the day when you sell back to them at a loss.

However, when you buy a property, the agent may be encouraging you, but apart from new builds, you're not actually buying from them, they're just a go between earning a commission.

1/ Just for a second there TTRTR I thought you had something intelligent to say but then you go and spoil it all by saying something stupid like '90% of people benefit from property' I assume you mean HPI ?

2/ The only ones who benefit from HPI are EAs, Lenders, solicitors, surveyors, the government, those trading down and yes unfortunatley Landlords ( that is while prices rise anyway). For the great majority of ordinary people who work for a living and want to trade up HPI is a disaster. If your house goes up 50% in value the next house you want to buy has also gone up 50% - net result you'll have to borrow much more money to make the same move- therefore you loose.

3/ Needless to say the great unwashed aren't able to work this one out - they just get £ signs in their eyes when some idiot EA tells them their house has gone up in value and suffer delusions of wealth. Worse still are the plonkers who borrow against the supposed value of their property - you arent any more wealthy just more in debt. Its no different to the bank upping your credit card limit. Alas the masses are asses and the bank and the EAs etc take them to the cleaners time after time - they are the 10% who benefit from HPI at everyone elses expense and its mostly the coming generations ( like my children) who will have to work their entire lives just to afford a 25% share of a bedsit ( except of course the market is going to correct) so as people like you can sit on you fat arses and live a life of luxury for doing precisely bugger all.

4/ The property market is not subject to some piece of economic magic whereby money grows on trees ... for every 'winner there's a loser' and yes the market goes up and it also goes down - thats when its payback time and happily its just around the corner.

1/ I said they gain from the investment. Don't you agree?

2/ Thos parties skim off the transaction, apart from the inflationary rise in their fees matching HPI, they don't benefit from HPI.

3/ Dealing with 2/ as well. Are you saying it would have been better not to buy, then have to borrow even more to be at the desired property? No, didn't think so. Your point is more of a complaint than an argument against what I've said.

4/ Wrong again. Inflation IS money growing on trees for a property investor/owner.

[vinny]

I was reading an interesting book last week. Apparently, 85% to 90% of people investing in the futures market lose money. Many lose everything they invest. It is a zero sum game, so 10% to 15% of the market is taking the remainder for a ride.

The same zero sum game applies to the share market. For every winner, there's a loser. It didn't say, but lets for the sake of argument say that probably no more than 35% of stock market investors make money ( I reckon that's very generous BTW), which means the other 65% are taking the remainder for a ride. The proof is in the expanding profits of banks like Deutsche who really are raking it in and the massive salary packages of chief executives, not to mention their lack of liability when thier PLC's go under.

On the other hand, there's property. What percentage of people who buy property gain from the investment? I reckon it's got to be well over 90%, don't you?

And you wonder why property is so popular!

If you stay invested in any one asset class or market during your lifetime you are probably playing a zero sum game. By using cycles and trends - being flexable to see opportunity and risk - you can shift stratergy to stay ahead of the crowd.

[MongerOfDoom]

I was reading an interesting book last week. (...) It is a zero sum game, so 10% to 15% of the market is taking the remainder for a ride.

(...)

The same zero sum game applies to the share market.

I suggest you recycle that book, preferably in an evironmentally friendly manner. The markets are in no way a zero sum game, even if they might behave that way over short periods.

If they were, there would have been no need to inject liquidity into the US financial system after the .con bubble burst. There would have been no real losses, just a bit of redistribution of wealth. Yet that is exactly what the Fed did, (thus creating a bubble in the housing market).

Another example can be based on put-call parity. Consider a portfolio long a share and a put, and short a call. The put and the call are on the share, have the same exercise price, and the same duration. At expiry you either exercise the put, or someone else exercises the call. Either way, you end up with the exercise price (and nothing else). This means that such portfolio can be bought at a discount as long as there is a sufficient time to expiry to cover the dealing costs and margins. By doing so, you make an amount approximating the risk free rate (again, after costs). If it were a zero sum game, someone would have to lose the same amount, but no-one does (for otherwise put-call parity would not work).

MoD

BTW: what does it mean to lose money in a futures trade? I see that profit or loss can be sensibly defined in the case of a speculator who eventually liquidates his position into cash. However, when futures are used in the way some idealists occasionally think they should be (e.g. to lock in profits) then the investor may not make a loss even if the counterparty makes a profit. Well, at least it is no more of a loss than your car insurance premium is wasted every time you manage to drive somewhere without writing it off and causing untold amounts of damage to others.

[Flat Bear]

I was reading an interesting book last week. Apparently, 85% to 90% of people investing in the futures market lose money. Many lose everything they invest. It is a zero sum game, so 10% to 15% of the market is taking the remainder for a ride.

The same zero sum game applies to the share market. For every winner, there's a loser. It didn't say, but lets for the sake of argument say that probably no more than 35% of stock market investors make money ( I reckon that's very generous BTW), which means the other 65% are taking the remainder for a ride. The proof is in the expanding profits of banks like Deutsche who really are raking it in and the massive salary packages of chief executives, not to mention their lack of liability when thier PLC's go under.

On the other hand, there's property. What percentage of people who buy property gain from the investment? I reckon it's got to be well over 90%, don't you?

And you wonder why property is so popular!

Houses are not for “investing” in they are for living in. Business can be invested in, try house builders if you want to “invest” in housing.

Traditionally people who bought or acquired property and decided to let this property out had relatively low returns on the capital sum of the value. There were many drawbacks including legal rights, maintenance, and taxation issues. Because of the 1988 shorthold tenancy act this made becoming a landlord more appealing. This was introduced, not to make landlords rich, but to create an environment where more opportunities for people to rent would be available. In other words to create a bigger rental market for the good of society.

On its own this act does not make “BTL” lucrative by no means as was the intention of “rent a room”.

The ONLY reason BTL has been a relatively successful enterprise since mid 90s (remember 1000s went under just before) is the astronomical rise in property prices. It is the (possibly perceived) EQUITY value of BTLers portfolios that make them feel rich not their return on capital through rent.

Other factors, which have helped compound this is the historically low interest rates of late and the unprecedented levels of immigration.

BTL IS NOT a lucrative business (it is not an investment it is a business) with low entrance qualifications and low start up costs. The massive equity gains seen of late will stop and could disappear (prices go down) It is so obvious.

I rented out property late 80s for £450pcm value appx 38k mortgage circa £110 gross pft £340 yield appx 15% which was ok as houses accelerating up. Price reached £65k mortgage about same and rental £475pcm, I could see house prices had stalled (they did in fact take a tumble later) yield was 8% which was c**p return for a business I could get that or a least half today in a bank. There are some idiots today that think under 10%, gross remember not net, is a good business margin, and that’s in a business with high risk of asset devaluation with little or no chance of appreciation.

What’s the difference between an amoeba and a recent BTLer?

When you find out let me know.

[Time to raise the rents.]

I suggest you recycle that book, preferably in an evironmentally friendly manner. The markets are in no way a zero sum game, even if they might behave that way over short periods.

If they were, there would have been no need to inject liquidity into the US financial system after the .con bubble burst. There would have been no real losses, just a bit of redistribution of wealth. Yet that is exactly what the Fed did, (thus creating a bubble in the housing market).

Another example can be based on put-call parity. Consider a portfolio long a share and a put, and short a call. The put and the call are on the share, have the same exercise price, and the same duration. At expiry you either exercise the put, or someone else exercises the call. Either way, you end up with the exercise price (and nothing else). This means that such portfolio can be bought at a discount as long as there is a sufficient time to expiry to cover the dealing costs and margins. By doing so, you make an amount approximating the risk free rate (again, after costs). If it were a zero sum game, someone would have to lose the same amount, but no-one does (for otherwise put-call parity would not work).

MoD

BTW: what does it mean to lose money in a futures trade? I see that profit or loss can be sensibly defined in the case of a speculator who eventually liquidates his position into cash. However, when futures are used in the way some idealists occasionally think they should be (e.g. to lock in profits) then the investor may not make a loss even if the counterparty makes a profit. Well, at least it is no more of a loss than your car insurance premium is wasted every time you manage to drive somewhere without writing it off and causing untold amounts of damage to others.

Lovely theories all of them. Have you made any money? Or are you at a net loss?

And interestingly the book mentioned that the vitual market seemed to stand alone as the farmers themselves (in the context of the futures that were being discussed) apparently hardly ever hedge themselves. The futures market therefore could be considered just legalised gambling.

Houses are not for “investing” in they are for living in. Business can be invested in, try house builders if you want to “invest” in housing.

Traditionally people who bought or acquired property and decided to let this property out had relatively low returns on the capital sum of the value. There were many drawbacks including legal rights, maintenance, and taxation issues. Because of the 1988 shorthold tenancy act this made becoming a landlord more appealing. This was introduced, not to make landlords rich, but to create an environment where more opportunities for people to rent would be available. In other words to create a bigger rental market for the good of society.

On its own this act does not make “BTL” lucrative by no means as was the intention of “rent a room”.

The ONLY reason BTL has been a relatively successful enterprise since mid 90s (remember 1000s went under just before) is the astronomical rise in property prices. It is the (possibly perceived) EQUITY value of BTLers portfolios that make them feel rich not their return on capital through rent.

Other factors, which have helped compound this is the historically low interest rates of late and the unprecedented levels of immigration.

BTL IS NOT a lucrative business (it is not an investment it is a business) with low entrance qualifications and low start up costs. The massive equity gains seen of late will stop and could disappear (prices go down) It is so obvious.

I rented out property late 80s for £450pcm value appx 38k mortgage circa £110 gross pft £340 yield appx 15% which was ok as houses accelerating up. Price reached £65k mortgage about same and rental £475pcm, I could see house prices had stalled (they did in fact take a tumble later) yield was 8% which was c**p return for a business I could get that or a least half today in a bank. There are some idiots today that think under 10%, gross remember not net, is a good business margin, and that’s in a business with high risk of asset devaluation with little or no chance of appreciation.

What’s the difference between an amoeba and a recent BTLer?

When you find out let me know.

For something that's for living in & not investing in, ther seem to be an awful lot of investors where you say there should be none. More opinionated speak than reality here.

[LazyDay]

The same zero sum game applies to the share market. For every winner, there's a loser.

Sorry, but this is not true.

[Flat Bear]

What’s the difference between an amoeba and a recent BTLer?

When you find out let me know.

OK

I think I have an answer

Amoeba dont start obvious loss making business schemes

(But I know a few that lend them money)

[vinny]

Sorry, but this is not true.

Sorry to agree with TTRTR, but it is.

[Sledgehead]

Sorry to agree with TTRTR, but it is.

No it is not. Unless that is the ftse allshare has really gone nowhere in the past 100 years. Oh, and don't forget dividends. Sorry, but you are clearly clueless.

On the other hand, there's property. What percentage of people who buy property gain from the investment? I reckon it's got to be well over 90%, don't you?

And you wonder why property is so popular!

You have not considered maintenance, insurance, interest or opportunity cost and taxes. With these included you are possibly keeping up with inflation. You have been on this board long enough to have seen me do the sums on that. Short or selective memory TTRTR?

Edited May 6, 2006 by Sledgehead

[vinny]

Sledge.

Are you including stocks which have collapsed, no longer visable, on long term charts /tables / calculations ?????

Invest in the stock market* OVER a lifetime, you will probably hit a Kontratieff winter and lose.

*Or stay in any market. There's a time and place for everything.

Edited May 6, 2006 by vinny

[MongerOfDoom]

Lovely theories all of them.

I am puzzled about how that relates to what i wrote. I gave you two clear examples to show that neither stockmarkets nor derivatives markets are zero-sum games. If you want to argue, I suggest a good way might to explain why the examples are wrong (or you could just say who it is that makes all the money lost in the various stockmarket crashes we seem to experience every now and then).

Have you made any money? Or are you at a net loss?

Not that it has any relevance to my earlier post, but of course I have made money by investing. It hardly takes a genius, seeing as most investments can be expected to produce a profit eventually. It is unlikely that any investor (i.e. not gambler) loses money in the long term.

MoD

[BuyingBear]

I was reading an interesting book last week. Apparently, 85% to 90% of people investing in the futures market lose money. Many lose everything they invest. It is a zero sum game

As is the housing market, you're simply reliant on the next muppet, it's just a wealth transference exercise. That's no surprise, look out on to the average street and look at the people that pass by, they're exactly the same people you see in the audience of 'Deal or no Deal'... "gamble" they cry, even when someone has countered ridiculous odds they still yell "gamble", and then they sit there dumbfounded after somebody has just thrown away £100k. It's akin to flipping a coin ten times and then being surprised to see a head after flipping nine tails.

The majority of options contracts are never exercised, they simply lapse, a decent trader will always ensure this is offset or hedged so he stays in profit. Remember that pigs get slaughtered, and a lot of people are pigs, they don't know when to take profit and run.

[Sledgehead]

Sledge.

Are you including stocks which have collapsed, no longer visable, on long term charts /tables / calculations ?????

Invest in the stock market* OVER a lifetime, you will probably hit a Kontratieff winter and lose.

*Or stay in any market. There's a time and place for everything.

It is my belief that the All Share doesn't suffer from demotion errors in the same way that the bellweathers do. Most of the losses will be included in the index from shares that are collapsing (say a Marconi). Yet the AllShare has still grown over and above inflation.

As to the practicalities of investing in the All Share, well, the same thing can be said of any asset class. For instance an area may seem sought after until garden grabbing takes hold. Yes, some early defectors who sold to the grabbers will make large profits which, when grouped index-wise may show everyone was a winner, but we know that the next door neighbours were be big losers.

As for K waves, again, the same is true of any asset class. Furthermore, 60 years of All Share investing will have seen your money grow over and above inflation, and K cycles are, I believe 60 year.

Instead of arguing the toss on when th enext K winter will occur, you might better spend your time telling TTRTRs his view of permabullity may be as illusory as any other asset class investment.

Edited May 6, 2006 by Sledgehead

[Flat Bear]

The Best Investment?

BTL PORTFOLIO

2004

BASE RATE 3.5%

BTL MORTGAGE RATE 4%

TRUE PROPERTY VALUE £1,000,000

MUPPET VALUE £1,500,000

DEBT ON IO MORTGAGE £800,000

NET REVENUE £70,000

Doesn’t look too bad, but roll forward 2 years

2006

BASE RATE 4.5%

BTL MORTGAGE RATE 5%

TRUE PROPERTY VALUE £920,000

MUPPET VALUE £1,560,000

DEBT ON IO MORTGAGE £800,000

NET REVENUE £48,000

True property prices in SE down around 11% but BTLer basis on UK average from VI source.

Real yield has actually increased due to asset value devaluation. You will hear a lot about rising yields in the months and years ahead, this will be due to price falls not higher rents, which have been, and will be squeezed severely. Still there is a profit, but roll forward 2 years

2008

BASE RATE 6.75%

BTL MORTGAGE RATE 8%

TRUE PROPERTY VALUE £770,000

MUPPET VALUE £1,100,000

DEBT ON IO MORTGAGE £800,000

NET REVENUE £0

True prices fall 16% and BTLers by around the same. Revenue is reduced mainly because of higher debt service charges and not helped by fiercer competition on avoiding void periods. Many decide to market directly to help sharpen their competitiveness.

Most will be trying to jump off the boat they didn’t miss a few years previous.

But roll forward 2 years

2010

NO PROPERTY, BEEN REPOSSESSED

[vinny]

"Instead of arguing the toss on when th enext K winter will occur, you might better spend your time telling TTRTRs his view of permabullity may be as illusory as any other asset class investment"

He will not listen, he will reap the "rewards" for doing so. So be it.

"K" waves are not of fixed duration BTW.

I may be better pointing out to those who will listen that IMO there are times to be in one asset class, or another, or in cash. I WILL NOT disagree with anyone who I think is correct because I don't agree with ALL their arguments.

[Sledgehead]

"K" waves are not of fixed duration BTW.

I may be better pointing out to those who will listen that IMO there are times to be in one asset class, or another, or in cash.

Indeed. Of course this is true, but timing is so frightfully tricky.

It is a matter of logic that asset prices will appreciate with respect to money as long as the money supply is increasing. Which asset class benefits the most is tricky to forecast and any contraction of expansion in money supply could well produce excessive market knee jerking to the downside. It's a tricky old world. It is probably true that in the very long term, asset classes as a whole merely match inflation. However, 'In the long-run we are all dead' as Keynes said. I suppose in this respect I should not have called you clueless and therefore beg your forgiveness. However, I am tired of these silly bears arguing their perma-stance "logic". Th efact is Hong Kong and Japan show that property can be a disasterous investment over ones lifetime, whether it fits their dream world or otherwise.

Cheers

[Flat Bear]

It is my belief that the All Share doesn't suffer from demotion errors in the same way that the bellweathers do. Most of the losses will be included in the index from shares that are collapsing (say a Marconi). Yet the AllShare has still grown over and above inflation.

As to the practicalities of investing in the All Share, well, the same thing can be said of any asset class. For instance an area may seem sought after until garden grabbing takes hold. Yes, some early defectors who sold to the grabbers will make large profits which, when grouped index-wise may show everyone was a winner, but we know that the next door neighbours were be big losers.

As for K waves, again, the same is true of any asset class. Furthermore, 60 years of All Share investing will have seen your money grow over and above inflation, and K cycles are, I believe 60 year.

Instead of arguing the toss on when th enext K winter will occur, you might better spend your time telling TTRTRs his view of permabullity may be as illusory as any other asset class investment.

It really doesnt matter about the finality about any investment (all investments will be totally worthless in the end)

I buy and sell shares and like everyone else at the moment i make money. I use an internet dealing service with instant buy sell at £10 a go, I can get in and out quickly and cheaply.

The question, I think vinny answered quite well, is why can property always be the best investment, especially when you consider the maintenance, other costs and time involved.

It is like someone saying gold is always the best investment

In fact I have given a bad example as gold is easy to maintain and is very limited in supply.

[Sledgehead]

The question, I think vinny answered quite well, is why can property always be the best investment, especially when you consider the maintenance, other costs and time involved.

dunno what you mean. Vinny seems to be saying all assets are much the same:

If you stay invested in any one asset class or market during your lifetime you are probably playing a zero sum game.

[BuyingBear]

And interestingly the book mentioned that the vitual market seemed to stand alone as the farmers themselves (in the context of the futures that were being discussed) apparently hardly ever hedge themselves.

I suggest you read a little deeper, maybe into the history of the hay market, corn exchanges or even the Baltic itself.