If you take a step back and look at how influential the media is upon investment markets around the world, is there potential to make an even greater gain by going against general market trends? Unfortunately, human nature dictates that we will be over exuberant on the upside and overly depressive on the downside which equates to some significant potential to increase your investment returns. Does this sound too simple to be true?
Taking the emotion out of investment
We have written before about how emotions can dictate the actions of some investors, generally those with relatively little experience, with many carried along on a wave of momentum. How many times have you watched a particular property or property market and refused to deal at the price at the time? Then, just a short while later you may see markets pushing further and further ahead and feel as though you have “missed out”.
Have you ever been tempted to enter markets much higher than the initial point at which you first considered an investment? You would not be the first!
Is the trend always your friend?
If you look at the graphs showing short, medium and long-term trends you will see significant movement towards the end and the beginning of each cycle. Once the mass media takes a different position on either an individual property market or perhaps the worldwide property market as a whole, this will almost immediately influence some investors. This will encourage the “trend followers” to think again and can very quickly build up momentum on the upside and downside.
In many ways the trend is your friend but to make the greater returns and to acquire assets at the “best price” you need to be transacting just before the trend changes. On the upside, once investors appreciate the market is overvalued on cold hard figures a relatively small trickle of sellers can very quickly become a tidal wave of those looking to bank a profit.
On the downside, when markets are friendless and prices are plummeting there will come a point when long-term investors see the light, a situation which can emerge after a substantial sell-off. Again, when the media and influential investors begin to warm to a particular market this will impact momentum and popularity. Once the market is seen to have turned then very quickly it will attract short-term investors who like to follow “new trends”.
Risk of going against the market
In theory, if you take a long-term view on any investment and the fundamentals do not change then you should just be waiting for the markets to recover. If however the situation does change along the way you may need to re-evaluate your position especially if the risk/reward ratio is moving against you. Some of the greatest property investors of all time have made their riches by going against the market, and looking longer-term, while others have jumped aboard short-term trends to bank a number of relatively small profits.
There is a risk with any investment, whether chasing the latest trend or looking to go against the market with a long-term strategy in mind, so not only do you need to do your research but you also need to continually re-evaluate the fundamentals impacting economies and property markets.