The Investors Most Common Question

Morning all, having had some time in quarantine, I decided to collect some thoughts and share them here to hopefully give some perspective on what investors could be thinking given the uncertain situation we find ourselves in globally.

The Investors Most Common Question…

Investor - When is the best time to buy? Now or Wait?

Me - Stick to the fundamentals!

I have been going over this point in my head over and over again recently. With 20 years of everyday experience and countless transactions later this has been the most common question I have been asked in my position as an estate agent and property investor. There is a famous saying, “the best time to buy was 20years ago, the second-best time is today”. This is a mantra I have stuck by over the years and it has overall served me very well. Having been through economic slowdowns in 2001 and crashes in 2008 I have experienced first-hand what it feels like when the market goes quiet now for the third time. In those times, only the toughest and most passionate survive. Only the ones that stay active and believe through a feeling deep down in their gut, they know that the world will bounce back. Even when the hysteria in the media portrays doom and gloom rhetoric that always sounds like “this is unprecedented” or “it will get much worse before it ever gets better” and even “this is affecting the whole world and we are not looking at a recession, but a global depression”. Those with faith believe the markets will rally again and before long we will be in our next boom part of the cycle. And that’s what all of this is, a cycle. It goes round and round, over and over again quite predictably with governments making up the rules as they go along trying their best not to crash their economy with things like chronic deflation or crippling hyperinflation.

Without needing to be an expert in the macro and microeconomic happenings around the world the general trend of the past 50 years has been generally positive. Living standards across the board have generally improved. Technology has provided more people with access to clean water, more people in education, fewer deaths from war and in my opinion this trend in a globalised society will continue.

Calling tops and bottoms of markets is a tricky game that only a few can accurately call. Is it futile to make such predictions? Are they just best guesses given that we never have all of the information to make a truly informed decision? Overall in my opinion no, the economy is a spectators sport and running commentary, predicting ups and downs, expansions and contractions can be both satisfying and enthralling, especially if you are proven to be right in the end. But how deep can and should you go within this rabbit hole? That all depends on a couple of things:

1. Your appetite for risk

2. Your view on the fundamentals

Your appetite for risk is the key driver for making any investment decision. If you are risk-averse you max out ISAs, you buy government bonds in a bid to keep your head above inflation and above all else, give you peace of mind. This does not propel you towards Warren Buffet or Ray Dalio type returns but you are doing something and that’s the most important part. You know that not investing your capital is much riskier due to (almost inevitable) inflationary pressures. We are all aware that governments do not like deflation and the magic target of 2% inflation is always front and center. As an investor, you know your return on savings must beat that inflationary target at a minimum. You also know that you do not want to chase Alice into wonderland with constantly reviewing reports, projections, forecasts, experts, webinars, podcasts, and newsreels. You just want to enjoy life and not worry about those things. That all makes sense and is fair enough.

On the other hand, you could take a more ambitious approach and decide that it is your responsibility to know what is happening so you can make better investment decisions and better returns. You feel strongly about having multiple streams of income and need to find an investment vehicle that provides you with a more attractive risk-reward ratio. In your quest for higher returns, you decide to analyse the market reviewing all the information surfing the ether across the information age. From experience, this has varying degrees of success. Just because you spent hours analyzing the market does not give you any guarantees that your chosen investment vehicle is a raging success, but it does increase the probability and that is what counts the most. The more time you invest researching these things, the better placed you will be to make better decisions on what, where, when, how and with whom to invest.

In my opinion, your view on fundamentals is the best gauge on the what, where, when, how and with whom to invest. They say that by taking no risk at all, you risk everything. That is a fundamental and one I also believe in which could be considered timeless. Another fundamental is that boom and bust cycles exist and there is little we can do to prevent them. It is a systematic force of nature and rather than fight it we should aim to work with it.

Now talking property (as that is what I know best), another fundamental is that whatever the climate, your property investment should be one of the best properties available on the market. Whether it is a property to rent or a property you aim to sell, the question you must ask yourself is “is my property better value than our competitors?”. Have you done your competitor analysis? Another fundamental is to stress test your investment. For example, if the market falls by 20%, can we survive LTV covenants? If costs rise 20%, can the investment still cover costs? If I cannot sell my property, can I exit on a term loan and ride out the storm? If in most cases you are happy with the answers you give yourself, then the best time to buy is still 20years ago and the 2nd best time will be today.

Having said all that, another fundamental we must consider is our current COVID-19 situation. It is undeniable that the longer the lockdowns continue, the worse the economic turmoil will be both nationally and globally. Waiting until the lockdown finishes is probably a prudent and sensible approach to your next acquisition given the circumstances. As the landscape currently moves on a daily basis it is hard to make commitments until there is some light at the end of the tunnel.

Overall the faith that the UK is still one of the most robust economies in the world along with one of the best property markets in the world allows me to stay focused on my next acquisition. I will be frank and admit my preference is to buy and hold right now but I am always analysing the market in different locations to determine what, where, when, how and with whom to make my next investment.