I Don’t Understand Shares…..Do you?
By Scott Whitford

I have friends that ask me why I don’t invest in the share market and why I focus on property, in particular residential property. I tell them quite simply it’s because I don’t understand the share market.  Let me explain.

Sometimes I look at the share market and shake my head. It doesn’t make sense to me. I mean,  I have dabbled in shares from time to time but it always seems to me that it is timing, not expertise or knowledge that provides you with the most opportunity to succeed. Of course, this would be OK if you needed some expertise or knowledge to pick the timing. Don’t get me wrong, sure you need to have some nous and wits about you, but it appears to me that there is more involved than I can see.

The experts all say that picking the swings of a bull market or a bear market is more about being able to assess people’s emotions and perceptions of the market rather than what is actually the reality of the situation. That’s ok for them but how does the lay person judge that?

Maybe I’m a little bitter……. curse those damn T2 shares, they still haunt me today. I was once told “don’t invest your money into anything you don’t understand”. So even though I understand the T2 product, the service they provide, what the company stands for and what it proposes to deliver to the market, I still don’t understand shares.

I am still perplexed that there always appears to be too many emotional factors, be it local or international at play that shouldn’t, but do, affect the pricing and volatility of the share market. After all, when it’s all said and done this is my money I’m investing and I want to know what’s happening to it.

That’s why I invest in residential property. This is a market that it is easier to understand, easier to know what influences the prices and get a feel for the details etc. There is no doubt that timing also plays a big part in this market, however there is also no doubt that this timing is far less volatile than the share market.

In recent years there are numerous articles about the property market bubble bursting, housing prices crashing, etc. However the property market in my view is far less volatile than the share market and in investment terms is far more stable.

I’ve provided a couple of graphs to demonstrate what I mean. As you can see, the residential property market has had extraordinary growth, only slightly less than equities but far better than Commercial property and the Bond market. But you can also see on the second graph that if we adjust the result to include risk we can clearly see that Residential property delivers much better returns.

In the end it all comes down to understanding. I feel more comfortable investing my money in a market I understand and trust rather than risking an investment in something that I can only hope will improve.
For me, that’s property.

This article was written by Scott Whitford, General Manager of Investors Direct, an award winning Mortgage Company specialized in strategies and finance for residential property investors since 2001.  Investors Direct is the finalists in the 2008 Australian Mortgage Award for Brokerage of the Year (Over 12 Staff Category) & Best Customer Service from an Individual Office.