There is no doubt that over the last 20 years, buy-to-let property has been a good investment. Landlords have not only benefited from an increase in house prices but rising rents; the average house price in the 1990s was around £45,000, today that figure is close to £250,000. At the same time however, rental yields have moved from 12% of the property value to about 4.5%. It is clear to see how people investing 20 years ago did well.
I have been thinking of how to describe the last few weeks and the quote from Vladimir Ulyanov to me best sums it up: “There are decades when nothing happens, and there are weeks when decades happen” The decision to leave the EU caught many by surprise, and we have seen events that would normally take months or years to play out occur in days!
The standard advice is: 1. That a prudent investor should hold a diversified basket of assets which react differently in different economic environments (uncorrelated) 2. That this strategy provides for less volatility and smoother growth
As with most things the prerequisite to getting the right answers is to first ask the right questions. Before a portfolio can be constructed or a specific investment made, foundation questions must be addressed.
History is littered with periods of exceptional performance. These often follow periods of market decline. The best time to invest is during the periods of decline because when the market corrects those investors will gain the greater benefit.
Investors use ratios to identify potential investment opportunities. The most common is the P/E ratio, ‘price to earnings’. This is printed in the financial press daily as part of each individual shares information along with dividend yield and high/low prices in the last 12 months.
Malcolm Gladwell in his book "Blink" explains the role of intuition in human decision making. Humans have the ability to process information almost instantaneously and gain a read on a situation that’s often extremely accurate.