Monday, July 30, 2007

Billionaires agree on investment horizon

Economic guru says that the clock is still ticking

July 30th 2007

These could be scary days for investors, unless they look back for the future.

As the Reserve Bank debates about putting up interest rates yet again, the property market looks perilously high, housing affordability is at all-time lows, and the sharemarket is making plunges into negative territory. What to do?

Recent sharemarket dips in the USA and China may drive panic into Australian investors. Many investors fear that October 2007 may hold a major sharemarket correction, as has happened in 1997 (Japan) and also 1987 (USA & Australia).

Right now, housing price growth appears unsustainable, sharemarkets look choppy, the US dollar is dropping and the Australian dollar is higher than in the 1980’s. Where should investors be placing their money now?

“This is all normal”, says Jeremy Britton, Australian financial planner and author. His latest book,
“Who’s Taking Your Money?”, deals with the money movement from USA to China and Australia and the centuries-old Economic Clock. “Although many of these occurrences look alarming, similar things have occurred before, and they will occur again. The trick is to recognise what comes next in the pattern and then be bold enough to take a calculated action.”

Calculated actions have been taken in the past by other wealth creators, such as
US investor and world’s third richest man, Warren Buffett. Buffett refused to invest into the booming “tech-stock” economy in the USA in 1999 and 2000. In a rare speech [published FORTUNE magazine (Nov. 22, 1999)], Buffett stated his belief that “returns from stocks would fall dramatically”. When tech stocks tumbled in 2000 and the broad US markets crashed in September 2001, the quiet oracle kept his profits and maintained his reputation as the world’s best investor.

Asian millionaire investor Lin Yuan has been called the “Warren Buffett of China”, after turning 8000 yuan into 1 Billion yuan over the last 20 years of investing. Like Buffett, Lin invests for the long term into good strong companies and stays away when things get too heated. He bought into the stock market after the 1987 crash and Lin invested in real estate only during the massive growth years between 2001 and 2005.

“Mr Lin sounds like a
clock-work investor,” says Britton, who advised clients to purchase property in 1999, seven years after the famous 19% mortgage interest rates stalled the 80’s property market climb and a year before the big property boom of the noughties. “Lin was in the right place at the right time and then moved to the next position when things changed.”

Investors who held property from 1992-1999 could have made returns in line with the CPI, whereas investors who held property from 1999-2005 could have doubled their money. Investors who held Australian shares from 2005 to now may be looking at returns of several hundred percent and despite market fluctuations, many believe that the sharemarket ride still has a way to go.

Buffett is still buying stocks, Lin is investing into a Chinese market that has already risen 300% and Britton is still looking at Australian shares. “It’s funny -- when my advice made investors 300%, people accused me of having a crystal ball to see the future. In reality, all I had was an old tool to look at the past.”

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