At large: Ross Greenwood
The experience that comes with age will help you recognise the opportunities
Age, I'm coming to discover, is quite a good thing. Though many decry ageing – and its aches and pains – I have found that it sharpens the mind and gives you a sixth sense.
Younger people might hate it when you speak it out loud but increasingly as people age they say to themselves, “I know what happens next”. Now they're not pretending to have psychic powers or deja vu ... rather experience. In other words, you see certain situations or conditions and say to yourself, “I've seen this before”.
The bigger question is whether you act on these judgements. That said, life circumstances (and this is an experience itself) mean that not every opportunity that comes along can be taken advantage of (otherwise you would buy a new car every year at “rock-bottom prices”).
But there are certain things you can bank on. For example, notwithstanding the protest from influential quarters, Australia's population will continue to rise. Our cities will grow larger. There will be a demand for housing, new and existing, for decades to come.
That said, house prices, especially in Sydney and Melbourne, have clearly got ahead of themselves. It would not be surprising to see ongoing price falls in these markets and, if the regulators and the Reserve Bank get the settings right, a prolonged period when prices go nowhere.
It is also true to say that market collapses are commonly triggered by a sequence of events that are glaringly obvious in hindsight but which – ahead of the collapse – are ignored by the majority.
But experience also tells you that economists, fund managers and commentators jump at shadows more often than they get it right. The constant commentary from even market regulators would put anybody off investing in anything, any time.
Someone with experience knows that this, too, is not the way to go. It is often when the most dire commentary is being made that the environment is most conducive to buying. It always bears remembering that peak volumes generally happen, in any market, just before the fall. The time to worry is when a market is at a record high, not when it is at a five-year low.
This comes back to the basics of investing in anything. If you are buying, the first rule is to understand why a seller is selling. If the sale is forced or the result of a panic, then you can always negotiate a lower price – so long as what you are buying is not junk, or worthless in real terms, in other words. (This is the so-called greater fool theory espoused by Motley Fool, where you need a greater fool than you to buy a valueless asset at a higher price.)
Such valueless assets (which at the moment clearly include bitcoin and other cryptocurrencies) are generally characterised by investments that do not generate meaningful cash flow, are not based on intellectual property (a good idea, in other words) or have vastly inflated valuations for goodwill in the balance sheet (it's one reason many media companies are being caught out right now).
The trick to investing is – and always will be – to follow the money. Cash flow is the king and the cheaper you can buy a growing stream of cash the more money you will make.
It doesn't matter if the cash flows from technology, property, retailing or ballooning, if it's going to make more money in the future – and you can buy it cheaply today – then it's a bargain.
Here I should distinguish this type of investment bargain from a so-called shopping bargain, where you still shell out the cash no matter how big the discount on the item is.
To take advantage of any bargains that come from distressed sellers you need to have cash – unencumbered cash – on hand. And that too is one of the great advantages of age. Always keep a few dollars on the side to make the most of the opportunities.
Now to those aches and pains … there must be a good biopharmaceutical stock working on that!