By Wayne Nicholson
Be fearful when people are greedy and be greedy when people are fearful
One of my all-time favourite quotes by 86 year old Warren Buffett arguably one the world’s most famous and successful investors whose nett wealth is estimated at 74.7 billion American dollars.
Let’s look at what Warren means by that quote. He is saying that when a market is running (some call it a bull market) and prices are climbing in a booming market, be very careful and afraid as you probably have missed the market gains, and whatever you pay will be on the high side of the market value. This is called a “sellers” market as it is the sellers who are calling the shots and are in control. Literally there are far more buyers than property available. In some cases multiple buyers on the one property is common place. Offers, unless very close to asking will be rejected because the seller knows there will be another offer tomorrow or even today or tonight. This is the market that you should be “fearful” of because buyers get greedy thinking they can buy now and sell it tomorrow and make a sizeable profit as the market keeps climbing. Picking the top of the market is anyone’s guess and if you get it wrong it can and will cost you a lot of heartache and money.
When the market is down and tight, prices tumble and buyer confidence fades. This is when a lot of sellers become fearful and fire sale their assets, literally tearing up money on the purchase price they paid when they bought in a seller’s market at the top. This is called a “buyers” market, where the buyers are now firmly back in control as there are fewer of them on the ground willing to buy in a down market and there are more properties for sale than there are buyers looking. Sellers tend to get nervous and those that have to sell for reason of transfer or financial hardship will reduce their sale price in some cases by tens of thousands of dollars and in some cases over a hundred thousand dollars. This is the market Warren says you should be greedy and buy as much as you can.
Let’s look at Townsville for one moment. From 2004 to 2007 we experienced a “sellers“ market and prices roared. In Kirwan the prices went from $250,000 for a 4 bedroom home to $400,000 plus and we sold them as quick as we listed them all the while experiencing fantastic and quick growth. Today we are selling those same homes for $325,000 and when you consider the land value is $170,000 to $180,000 you would have to subscribe to Mr Buffett’s theory and become greedy and buy as many as you can.
By Wayne P. Nicholson