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Why you need to be contrarians in property investment

In the preface of No B.S. Guide to Property Investment, I mentioned the reason why I wrote the book.

I bought my first few properties in the early and mid-2000s during the economic downturn. Back then, there was not much public interest or media coverage of properties. I couldn’t find any good book on buying properties in Singapore.

I thought it would be useful if I could write a book from a fellow property investor’s perspective to share neutral and unbiased views for the reference of property buyers.

The situation is totally different now. Everyday there are many new property articles published on local newspapers, news portals, financial blogs and other online sources.

But readers are also bombarded with news articles mixed with advertorials and sponsored posts. Any piece of news can be interweaved with twisted facts, biased opinions, misinterpreted data and wild speculations from people with vested interests.

How to pick who to trust?

My last month’s post “Property news? Always question what they tell you” mentioned thinking separately about the topic first before reading the content of any article. That way you will be less likely to be misled by any biased view.

No matter how convincing the authors in driving home their points, only time can tell whether their opinions are objective or their conclusions are valid.

Try reading property articles written a year ago, five years back or even a decade earlier. What do you find in common?

Many headlines and viewpoints in those old articles now look irrelevant to us and are completely different from what have really happened. And almost all the market forecasts are hopelessly inaccurate.

By the way, if you happen to come across industry experts who can still stand behind what they once said without embarrassing themselves, whose predictions are 70 percent correct for what the reality turns out to be, it worth your time to continue reading and following their work.

Because Ken Fisher said, “A 60% or 70% success rate keeps you well ahead of most … if you’re right 70% of the time in this realm, you become an absolute living legend.”

Because it is common to see people flip-flopping their stance from time to time - depending on what is best for their interest or what the audience likes to hear.

For most people, it is not important to hear the truth, but to hear the lies that please them or reconfirm their preconceptions.

That is why we enjoy watching remarkable speeches delivered by politicians - those who make us believe that they can give us hope and promise a better future.

Who do you think cheated more, the politicians or the bankers? … the bankers cheated about twice as much.

- Dan Ariely, The Honest Truth About Dishonesty: How We Lie to Everyone – Especially Ourselves

The majority is not always right

It is common to see property news headlines trying to report a market trend or hinting the next hotspot:

  • “Most buyers are still optimistic about xxxx”
  • “Investors find properties in xxxx a good buy”
  • “More investors are buying up xxxx”

Such misleading headlines often arouse the suspicion of contrarians like me:

Who are still optimistic about the market? How many are we talking about when we say “most” and “more”?

Why would investors let slip of what they are buying? How did we come up with such conclusions?

What is the real intention behind such headlines?

No doubt these articles are trying to exploit the herd mentality in our human nature.

John Maxwell said, “Many people look for safety and security in popular thinking. They figure that if a lot of people are doing something, then it must be right. It must be a good idea.”

Japanese blogger and writer Chikirin said whether something is right or wrong is not determined by whether the majority is doing it.

“If you are not following what the majority of people are doing, you will be asked why.

You don’t have a fixed job. Somebody will ask you why.

You don’t get married by the age of forty. Somebody will ask you why.

You don’t have kids five years after marriage. Somebody will ask you why.

What they are really asking is ‘When everybody is doing it, why are you not following?’ People who ask these questions could be in the state of ‘stop thinking’. That is why they don’t realize that the right question to ask should be ‘Why we have to follow other people to do the same thing?’

People who go west when everybody else is going east, they are doing so to follow their heart, not because everybody is doing so.

Ask the married: If the majority are unmarried, do you still want to get married?

Ask the undergraduates: If the majority start working after high school, do you still want to go to college?

Ask the employed: If the majority are not working, do you still want to work?”

Be contrarians and prove them wrong

We tend to ignore how behavioral psychology and emotional bias affect buyers’ purchase decision. It is the uncontrolled greed and optimism that drive the herd to rush for the purchase. It is also the irrational fear and pessimism from the same group of people that crash the market.

Certainly nothing had happened within twelve months’ time to destroy more than half the value of this powerful enterprise, nor did investors even pretend to claim that the falling off in earnings from 1937 to 1938 had any permanent significance for the future of the company. General Electric sold at 64 7/8 because the public was in an optimistic frame of mind and at 27 ¼ because the same people were pessimistic. To speak of these prices as representing "investment values" or the "appraisal of investors" is to do violence either to the English language or to common sense, or both.

- Benjamin Graham and David L. Dodd, Security Analysis (Sixth Edition)

If you do what the average person is doing, your result will only be average. If you don’t want to end up a mediocre, you must have the courage to do something different from the majority.

“If everyone is going left, look right,” said real estate billionaire Sam Zell. “And I was willing to trade conformity for authenticity – even when that meant being an outlier, which it usually did, and even if it meant being on my own.”

Once you think and act differently from the majority, you must be prepared to be in constant solitude. Because contrarians are unlikely to find agreement from others for their investment decisions.

But experienced investors don’t ask around for opinions and they don’t need reassurance from others. After all, they make money not from following the path of the crowd, but from deviating from the course of the crowd.

The best bargain hunters do not need confirmation from a multitude of others that they are correct to buy a stock. To buy something unpopular, you must be independent-minded and capable of relying on your own judgment.

- Lauren Templeton and Scott Phillips, Investing the Templeton Way

Don’t ask why you have to be different from others. To be successful in property investment, you don’t have to be like others.

And don’t be afraid to feel lost at times. Sometimes losing your way only makes it clearer where you really want to go.