Certain Strategies For Uncertain Time
A downturn in the market presents many opportunities for investors willing to take the risk, writes Maree Tassell
1 June 2020
I’m writing this at the beginning of May 2020, when New Zealand is still in “lockdown” because of Covid-19, so I’m well aware that by the time you’re reading this, things will be very different to how they are now.
We are in unusual times. That humans seek certainty is well known, especially when relating to financial security. Which is why, in times of uncertainty most will choose to sit on the sidelines and wait to take action until they “know” what is happening.
The other side of this coin is that many entrepreneurs build their fortunes during recessions because they choose to take actions that are against the flow of the crowd and focus on what opportunities are present. Which is why Warren Buffett once said that as an investor, it is wise to be “Fearful when others are greedy, and greedy when others are fearful”.
Something interesting I have observed during difficult and uncertain times is it is usually the experienced investors who come out of the woodwork, while the less experienced may become paralysed by what they’re being told to expect by the media (remember that good news doesn’t sell as well as bad). This is what experienced investors do:
• They focus on finding ONE GOOD DEAL at a time. They can separate this from the rest of the market. They have an awareness that they are not buying the whole market, just a tiny piece of it.
• They focus on the long game. While there will always be speculators, playing the long game provides assurance that they can weather whatever storms come up.
‘Many entrepreneurs build their fortunes during recessions because they choose to take actions that are against the flowmof the crowd’
• They look for reasons why something could work, not reasons why it won’t. Yes the world could be falling apart, so what opportunities does this create? As an investment, people tend to trust property more than shares, for example, because it is tangible. People will always need a place to live. So what opportunities may be hiding in the current climate?
Common questions right now are: “will the market drop?”; and “will rents go down?” Perhaps. Perhaps not. It doesn’t matter. What matters is: “what can I buy today that works for me and that I can factor in some contingency?”
With interest rates historically low and now the removal of loan-to-value ratios by the Reserve Bank, in many ways it’s never been a better time to buy for investors. Other reasons to be optimistic is the knowledge that there are currently about 1,000,000 Kiwis living overseas. It’s not unreasonable to consider that a number may want to return to the perceived safe-haven of New Zealand.
Billionaires are talking about wanting to relocate to New Zealand – I say let them come! Let them bring their money and ideas and create businesses here that employ New Zealanders. Why not create a Silicon Valley down-under?
Another trend to consider is whether small apartment living will be considered so attractive after having been locked inside one for six-plus weeks? Perhaps there will be a trend towards having a bit of space and privacy? As the workforce has demonstrated that much of it can function perfectly well from home, I’m wondering if this will result in migration to some of the regions so people can balance lifestyle factors into their new working life?
As for commercial office space – will we need so much of this when much of the workforce has demonstrated they can work effectively from home? I am guessing some commercial spaces will be converted to residential.
The other trend we saw occur after the global financial crisis was university enrolments went up as people looked to retrain, which is why some investors who provide student accommodation are particularly active right now.
These are all just my best guesses. Like you, I have no crystal ball, but I don’t need one to know that opportunities are present in every market. While I am aware that there are real problems facing our country right now, and there is a lot of uncertainty, as an investor I want to focus on what could easily be missed by only focusing on the problems.