I’m sure you were asked at some point or another by your parents, “If (insert name) jumped off a cliff, would you?”
While this is obviously a ridiculous question, the point they were trying to make is there are followers and there are leaders, and perhaps at the time you were intending to follow someone who was heading in a less than desirable direction!
When we are teenagers, we’re often warned about “peer pressure”, which is basically doing something because everyone else is doing it.
This behaviour is also known as the “herd mentality”.
In other words, just like an obedient sheep or cow trotting along behind the rest of the cattle, you are acting according to what the masses of the moment dictate.
If we get into the social mechanics of following the crowd, some experts would probably suggest it’s a way for us to feel safe or accepted; we’re sticking together and not straying into unchartered waters all alone.
The problem is, while it might seem like the safest option at the time, the herd can also present a very real risk to the individuals in it.
Think about a herd of zebras wandering across the plains of Africa who are suddenly confronted by a hungry lion. There is panic and chaos as the danger is sensed by each animal and suddenly they are all feeding off each other’s fear.
Wikipedia describes the “herd mentality” as – “Individuals in a group can act together without planned direction.”
We’ve all seen this type of behaviour; consider peaceful demonstrations or sporting events that somehow turn into riots. Generally this is due to a handful of people who decide to cause trouble and in turn, their emotions flow through to others around them who then become aggressive themselves or panic – the fight or flight instinct kicks in.
Now quite obviously in the above scenario, the herd mentality can be physically threatening and dangerous, but when it comes to investing – either in shares or property investment – the herd mentality can be just as harmful.
Consider shares for a moment, where a boom or crash is triggered by a mass panic of buying or selling among traders.
Generally the emotions driving the traders’ actions are driven by either fear or greed or more often than not, both.
Another example would be an audience at an investment seminar where the speaker is spruiking the latest “get rich quick” scheme.
They tell the crowd that if they don’t act today, they will miss out on the “opportunity of a lifetime” and before you know it, just about everyone is eager to sign up; afraid they will miss out on their millions!
There is an excellent quote by the famous military strategist Sun Tzu; “To see victory only when it is within the knowledge of the common herd is not the acme of excellence.”
In other words, if you want to be average, follow the crowd of average folk out there and press on with the “herd”. But if you want to achieve excellence, you need to break away from the pack, take your own path and make the best choices for you as an individual.
Successful investors know that to get to the top of the property ladder, they need to overcome the fears that hold most people back from ever stepping foot on the first rung. They also understand the importance of timing and, wait for it, going against the crowd!
Essentially in property, when everyone is panicked into buying because of talk in the media about a booming market or thriving economy, the smart investor sits back and watches the throngs of buyers who think they might miss out push up prices, almost overnight.
The smart investor thinks this is fantastic, because during the slower part of the property cycle, when there was talk in the media about an impending market crash and a decline in housing values, they took advantage and added to their portfolio.
You see, at this point, the “herd” had become fearful so most of them either decided to sit tight and see if the doom and gloom predictions would come true, or worse still, many chose to sell up – afraid they were about to lose everything. This meant there was a glut of stock on the market and very few willing buyers.
Of course this approach to investing requires two things – the confidence to make a move against the crowd and trust your own instincts and some knowledge of property cycles and how the ups and downs work.
So what do you do if you don’t have the confidence or knowledge required? Well perhaps it’s a good idea to find a new herd to follow – the much smaller herd of successful investors who have gone before you; read books, attend seminars, watch DVD’s or seek individual assistance from people who have achieved the type of success you desire through investing.
Following is an example of a house we purchased on behalf of a client of Metropole in the Brisbane suburb of Moorooka that perfectly illustrates the benefits of investing based on the individual merits of a location and specific property, rather than waiting to see what the herd is doing.
The timber and weatherboard, 4 bedroom and 1 bathroom house is in original, neat condition and was on the market at an asking price of offers over $535,000. Located 6 kilometres south of the CBD, Moorooka has outperformed the average rate of growth for Brisbane, achieving 12.51% per annum over the past ten years.
We managed to secure the property for a client of Metropole for $523,000 – a great result given the original marketing price and the location of the house; in a popular street undergoing gentrification of existing homes and in close proximity to schools, parks, public transport and major arterials.
Although the property requires no refurbishment in the short term, it does have value add potential with the ability for our client to undertake some small cosmetic upgrades down the track. This could include painting the weatherboards and rendering the brick base, a new coat of paint internally, pulling up the carpet and polishing the original floorboards and upgrading the kitchen and bathrooms.
The primary reason for securing this property on behalf of our client was the outstanding capital growth performance of the suburb, combined with a 3.98% rental yield (rent is currently $400 per week), that gives the investment excellent potential.
If you still require assistance and are simply not ready to go it alone, there’s always help. The award winning team at Metropole assists clients every day to achieve their property investment goals. We use investment strategies that are based on years of proven success, ensuring that our clients don’t end up blindly following the herd.
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