Earl’s court, Oct 14th

Most small property investors think of their investments in terms of yields, mortgages and capital growth. They almost invariably don’t think about stocks, shares and the FTSE. But if you take a look into the world of the serious investor, you’ll find a large number of them are involved in both property and shares. The truth be known, property and shares go together like fish and chips. To incorrectly quote Gill Fielding: “There’s no great secret to being wealthy, it is just a series of very simple baby steps. If you are in the right place in property and the right place in shares, you’ll become wealthy.” Personally I think there’s a lot of truth in this. There’s a huge number of areas where shares and property overlap. The IX Investor Show is one of them. Some of the well-known exhibitors from the property world were there; “Ready to Invest”, perhaps being the most notable, but also smaller outfits like Suzi Dior’s “Easy Spanish Property”. I think this goes to show that I’m not the only one who’s thinking this way. This crossover is not only represented by the nature of the exhibitors, but also in the philosophies and the tools that are available.

My copy of Robert Kyosaki’s “Cash Flow” board game (which sadly got nicked by some miscreant at Suzi Dior’s Networking Club) shows how a mixture of share trading and property investment will pay handsome dividends to investors. But some people will say: you should specialize, do what you know, do it well and make money out of it. I do think you should specialize – but you should specialize within each field. You don’t need to have only one strategy to be a specialist.

Share trading teaches you a number of things about property that you would not naturally learn. Most property investors take a reactive approach – “let’s watch the market and see if house prices have gone up or down this month. We’ll start buying if it moves.” Share traders by contrast take a more predictive approach to looking at the market. They look for big moves in the investment background: interest rate changes, stock market performance, trade deficits, political change, etc. They then use this to predict the next move the market will make, and invest accordingly. We property investors can learn a lot from this.

When you start looking at stock charts as a property investor, you begin to think about property in a new way. Previously you might have seen house prices going up or down by certain amount just like an amateur would see FTSE move. Out of context, it seems like a single unpredictable number. But someone familiar with stock charts can look at the housing market like a professional economist would look at it. You then see it in terms of chart patterns and technical signals. You look at the affordability indexes as much as you look at the headline price of housing. And as a result, you see the changes before they happen – so you can profit from them. For example, on a street level we can see the equivalent of a ‘breakout’. For a share, this means the stock rises to a certain level several times and then falls back – it ‘tests’ the level. Then the stock ‘breaks out’ and tends to jumps quite a bit when it does. This happens in property all the time. The first house on a street that breaks 100K tends to drag all the others up with it. This is just one of many behaviors common to property and other instruments.

The Investor show had a wide range of speakers who looked at fundamental analysis of the US economy, successful psychology for investing and software packages to help you manage your trading.

Charles Schwabb ran an evening on US investing, and one of the speakers was the gloriously named Bo Yoder. He gave a really interesting talk that was a great lesson to all investors. He was describing the way he picks stocks, and how that was different from his colleagues. Apparently, he’s frequently caught in conversations with testosterone-fuelled traders describing how they caught the ‘big move’ in some big name stock and made a killing. They’re often surprised when he responds that he didn’t even look at that stock, and was actually trading something his colleagues had never even heard of. The reason for this is simple. He’s not looking for the big moves in big names. He spends all day looking for stocks that are presenting the exactly correct ‘get in’ signals according to his own rulebook. It’s not the rules that matter – it’s the discipline. He’s happy to go against the crowd. Once everyone else starts buying this stock – looking for the ‘big move’ – he’s already selling it. He’s selling it because they’re dumb money and they’ll pay him top money for his stake. For him there’s no fireworks, no drama and no testosterone. Just a formula that works, followed consistently. He does his own research, and trades what he sees. Property investors used to chasing deals, hot-headed auctions and wildly-oversold ‘investment’ property can learn a lot from Bo’s cold, hard headed investment approach.

Overall, if you are a property investor, looking to improve your skills and knowledge and thus get a deeper understanding of your market, you cannot beat learning about trading shares and other securities. You will be amazed how much better it makes you at property. But why? As a property trader, what can you learn from shares and what can you achieve by investing in shares?

In terms of achieving with shares, the time scale is often much shorter than it is for property. So, you can use shares to fill your time and gain an income while you are waiting to property investment to mature. Obviously, this depends on your strategy, but if for example you’re an overseas off-plan investor, then you’ll have large amounts of time while you are waiting for builds to progress. This will lead to a situation where you may have little money coming in from your investments, a large amount of exposure and very little to do. Learning how to trade share positions that expire in weeks or months is therefore advantageous. You can earn 15% a month trading shares, provided you know what you are doing. Of course, the risk that you are exposed to is usually closely linked to the returns you are able to get.

People often have a misconception about share trading that you have to spend the entire day glued to the screens. If you are swing trader, you might be taking positions which last for between three days and two weeks, looking for significant movements in share prices. This doesn’t mean that you need to stare the screen all day. In fact, for many day traders there is a big risk in overtrading. Patience is a virtue when you are dealing with stock markets – just like it is in property. So you can still have a life!

In terms of what property investors can learn from share trading, the rewards are rich – much more so in my view than the other way around. Being a great property dealer will not make you good share trader but being a good share trader will make you very much better property investor. You will learn to look for the factors which cause movement in prices rather than just assuming that the movement is going to happen and waiting patiently for it. Shares go up and down a lot more than property does, and as a result you become used to looking for the forces that drive the market. As a result of this, you can often predict movements in property in a way that most other investors are unable to do. This is obviously hugely advantageous. You can look for situations where properties are overpriced and are at a risk of a bubble or a crash. Not a lot of people in property have very much awareness of this. They’re just aware of the risk, but they don’t know how to look for the point at which the bubble forms. You can also look for situations that cause property to be undervalued, such as when you have a long-term demand in the market, unsatisfied by the current levels of supply. You can look for markets that are emerging and ones that fit in the correct part of the economic cycle. For example, if you are investing in a holiday properties, you don’t want to be doing so when you are on the cusp of global recession.

Among the various software and brokerage stalls were a number of more unusual exhibitors like Business Angels and wine dealers. This isn’t novelty shopping – I know serious investors who are very involved in this type of work. This happens to be quite relevant to me as I am currently looking for angel finance for a property venture. Of course, there were also the usual clutch of share dealing platform operators like E-TRADE and information service providers like ADVFN and Digital Look. If you’re not familiar with these products go to their websites and check them out. If you make a commitment to look at just a couple of major stocks or indexes every week for three months you’ll learn an awful lot about investing. Find out why they moves, what patterns they move in and try to apply this knowledge to other areas. It’s a remarkably useful exercise. You might find you even enjoy it.

My share trading bank isn’t large. My exposure to the stock market is generally only a few hundred or few thousands pounds – but the lessons I learn looking at my chart patterns and reading the FT pay me handsomely in property. This kind of learning will also pay you, too.