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Stocks versus property. Why I prefer stocks
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ruanlai
Master |
03-Jun-2013 09:57
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I do not like ppls to quietly buy up Rotary ...........insiders news to Myanmar Projects also cannot tell......sigh |
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shuncheng
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03-Jun-2013 09:21
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Wise to put investment in various sector so I put 60% on property, 20% on stock and 20% cash just incase opportunity comes |
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wacko111
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03-Jun-2013 09:14
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I am quite surprised by your strong comments against property investment. Here's my thoughts: Leverage An astute trader or investor would always use OPM. Leverage is dangerous if you don't know what you are doing. If you haven't been using leverage in this low interest rate environment, then perhaps you are already losing out. I just want to reiterate the importance of leverage. All successful people out there embrace this. Businessman don't use 100% cash to start their business. They borrow! Anyway, the fact that you are a shareholder also means you embrace leverage somehow or another because the stock(company) you bought definitely have some form of debt :) Liquidity Property is definitely not as liquid as stocks. But astute property investors go in for the long haul. You must first understand that property and stock are 2 different asset class. A smart investor would include both in their portfolio for exposure and risk management. Property investment in Singapore When u buy an investment property, you will rent it out. The rent would probably cover in excess(positive cashflow) or around 80%(negative cashflow) of your mortgage installment. In essence, someone else is paying the property for you. The beauty of investing in sg property is that property rises in tandem with inflation. This is due to the combination of scarcity of land rising material and labour costs increasing population. The thing is this: pick any property from any location, you will realise that its value increases with time even after going through 97 and 08 crisis. Then, take a look at your own stock portfolio, are you still holding on to losers from the 08 crisis. Are you a value investor or long term investor by default? The fact is property has more than doubled(excluding rental yield) the past 3-4years. I love both asset class. But to each his own. I wish you the best. |
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h.y.o.m
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03-Jun-2013 00:05
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In one sentence why I refused to buy an investment property - I cannot control risk with property investments with the same ease as stocks. Given the very high property prices in Singapore and my own financial resources, I only have enough money to buy 1 property for investment. Only 1. What can be more concentrated than that? The lack of diversification makes it hard to manage risk. With stocks, I can construct a portfolio of 30 stocks with not a single one taking up more than 5% of my net-worth. I can afford to make several mistakes without facing financial ruin. Can the same be said with a concentrated property portfolio consisting of only 1 property? To make matters worse, this single property has to be bought with leverage. How many Singaporeans can buy a property with cash? When an investor uses leverage, his margin of error is greatly reduced. The mortgage debt is usually quite substantial because it can take 20-30 years to repay with today's high property prices. It is quite common to pay 25% cash with the rest using borrowed money to purchase a property. The investor loses 20% when the property drops 5%. Leverage introduces the risk of margin call. Although banks seldom ask borrowers to top up their mortgage loan when property price drops, they are legally allowed to do so. If the borrower misses the interest payment because he loses his job, the bank may foreclose and force-sell his property in a battered-down market at a lousy price. With stocks, there is no need to use leverage. One can build a diversified portfolio with as little as SGD30000 with cash. Value investors tend to steer clear of bubbles. I do not shun participation in a bubble if the underlying asset is liquid. The end period of a stock bubble is historically characterized by a parabolic rise of stocks in a short time. Being out of the market at this stage means missing out the opportunity to make lots of money in a short time. Thus, I will join in the crowd despite knowing that it is a stock bubble, although only a manageable portion of the net-worth will be inside the market. (Don't try this if you are a newbie in the stock market, particularly if you have yet to suffer gut-wrenching losses) The reason why I dare to join the bubble is that stocks are liquid. The moment danger is sensed, one can get the hell out in a single trading day. This is one of the advantages of being a retail investor with a small fund to manage. It makes risk management much easier. Properties are illiquid with high transaction costs. Unlike an equity investor, there is no way for a property investor to get the hell out even if he desperately wants to because of property's illiquid nature. If a hired fund manager shows me a portfolio with a highly leveraged, super-concentrated and illiquid portfolio, I will sack him straightaway so that I can sleep better. How to manage risk with a portfolio like that? Singaporeans who took on a 20-year mortgage to buy an investment property are doing just that. Besides the inability to manage risk, there is another good reason to avoid property investments. I hate debt intensely. The only time I overcame this hate was to buy my first residential flat so that I can marry the love of my life. While this article frowns on property investment, a HDB flat is highly desirable. One motivation foreigners convert to become a Singapore citizen is to have the privilege to buy our HDB flats. Particularly for Singaporeans who have sacrificed for National Service, don't ever miss your privilege to buy a HDB flat. It is almost a sure-win as it is subsidized by the government. Besides, everyone needs a roof over our heads that provides the stability for us to marry and start a family. Buying an investment property today usually involves taking on a huge debt that requires at least 20 years to repay makes a person a financial slave. If the goal of investment is to be financially free, then does it make sense to take on so much debt for an investment that it makes one a slave for the next 20 years? It is not just money anymore. It is freedom. With a heavy debt, a person has to tolerate bullies at work. It is easy to slip into mental depression if a person has to drag his feet every day to work in an environment that drives him crazy. Although my present workplace is wonderful and I am working with and for pleasant and smarter people at the moment, there is no guarantee that this can continue. The advantage of investing and saving hard is to accumulate enough " f**k-you" money to have the freedom to show the middle finger and quit when faced with unreasonable behavior at work. Buying a second property at this point will take away all the " f**k-you" money that I have painstakingly accumulated over the years. For high net-worth individuals with enough money to buy up multiple properties with cash, property is an appropriate component in this investment portfolio. It is easier for the rich to manage risk in their property portfolio. For the majority of middle-class Singaporeans like me, I think they should think twice before committing to a highly leveraged, concentrated and illiquid investment that can potentially make a slave out of them for the next 20 years. |
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