1) ‘Should I buy an apartment in Melbourne?’
We had some friends around for dinner last night.
Sara and Chris are a young couple who just made good money as part of a family property investment.
They were lucky that the property — purchased in 2013 — is in Mornington Peninsula, which is currently exploding in price.
What to do with the profits? An apartment in Melbourne or a house and land package in the outer suburbs?
Urgh, I said. Neither of those. Both of those ideas are terrible.
Another mate of mine at the gym — only 26 — told me last week that she bought an off-the-plan apartment in south-eastern Melbourne.
Urgh, again.
The money is in the land, folks!
You want to own big blocks of land that can be developed or rezoned in some way.
At the very least, the biggest buying demographic — families with children — want big backyards.
Chris immediately seized on this idea as soon as I said the same to him.
‘Yes’, he emphasised:
‘The house we just sold…everybody wanted to know about the land area…it didn’t matter how good or expensive the materials we used on the house…people wanted a big block, as big as they could get.’
Big blocks are dwindling in supply everywhere in Melbourne. They’re getting chopped into two units or three townhouses city-wide.
Big demand? Shrinking supply? Sounds good to me.
The development profits from this type of thing can be very big.
There’s another effect of this. Townhouses and units keep affordability in range for the homeowning public.
Yes, you get less. But you can’t have it all in this life!
Chris continued: ‘I’m going to buy the biggest block I can afford.’
Me: ‘Good man.’
Then I handed him the report I wrote with Catherine Cashmore last year. In this we predicted the booming housing market we are currently in.
Hardly anyone bought it because nobody could believe housing could boom because of the pandemic.
Most thought we were going into a Depression.
How to Survive Australia’s Biggest Recession in 90 Years. Download your free report and learn more.
That report lays out how long the property cycle can run for — before it ends.
2) Enough of the property stuff! My heart lies with the stock market.
Last week we saw some substantial volatility. Great! I love volatility as a trader.
It often throws up cheaper prices on stocks I am happy to buy or recommend. There’s nothing like a good spook to get a better deal.
And what if Omicron keeps tanking the market? Well, we’ll see. We can always jump back out again.
I’ve lost count of all the ‘spooks’ in the stock market I’ve lived through now. But the world and the economy keep turning.
Some ideas work, some don’t. The game goes ever on.
Here’s something I’ve noticed. Gold stocks are not moving currently.
In 2020, a lot of traders and investors held gold stocks as a ‘hedge’ for their portfolios.
That’s not happening now. There doesn’t seem to be the same fear around Omicron.
It makes sense, I suppose. After all, we’ve survived the initial outbreak and then Delta.
What surprises me is how gold stocks aren’t catching much of a bid when they’re making so much money.
It’s not as if there are other areas of the market booming either.
It’s been tough going the last six months.
But the heady times will come again. There is too much value in the Aussie market to be left alone forever.
It’s astonishing how much value there is or appears to be.
I’ve mentioned one example of this lately: real estate investment trusts (REITs).
Just last week, the Australian Financial Review covered a property shindig where it’s clear the big super funds are considering buying out some of these trusts.
The super funds have gigantic levels of cash and capital, and some REITs are trading below their net asset value or with yields as high as 5–6%.
There are deals in the private sector pushing yields down to 3.5%.
This discrepancy won’t last! Make the most of it while it exists.
3) One final thing. A cause close to my heart. My nephew Ned has a horrible condition called cystic fibrosis.
Every Christmas, the CF charity does a fundraiser called ‘Sock it to CF’. You can see all the socks here.
You grab a pair to help raise money for them. Get the Christmas feeling going and give it a go!
Best wishes,
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Callum Newman,
Editor, The Daily Reckoning Australia
PS: Our publication The Daily Reckoning is a fantastic place to start your investment journey. We talk about the big trends driving the most innovative stocks on the ASX. Learn all about it here.
