‘You just have to treat the market more as an art than a science.’
Keep this line in mind.
The Financial Times ran a profile on a man called Gary Ross yesterday.
Señor Ross is seriously rich after spending 50 years in the oil business. His Twitter handle is @kingofcrude.
He’s made some great calls along the way.
Here’s the anecdote that stuck out for me from the whole thing.
His brother has a PhD in applied mathematics from Stanford University.
Ross sent him a truckload of data to help him analyse the market. His brother spent months going over it before replying, ‘It’s impossible. There’s no pattern.’
Gary Ross doesn’t agree…
Here’s why the price of oil can confound data mining, predictions and expectations.
Gary already told us: It’s psychology! It trumps practically everything.
We can apply this right now. The current ‘macro’ perception is suppressing the oil price.
Fundamentals are reasonably bullish.
Ross believes that Brent would be around US$70 otherwise.
Instead, it’s US$58. That’s because the market is pricing in a potential recession, yield curve inversion and trade war. There are so many worries…
You’ve read all the headlines.
But this dynamic doesn’t just apply to oil. It applies to the stock market as well!
Think back to 1999. Market psychology was wildly bullish.
Stocks soared to ridiculous valuations. It didn’t matter if companies made no money or had any assets.
The internet was going to change everything, darn it!
Narratives do drive markets. We have to be conscious of them.
In a strange way, it gives me reason to suspect there’s more upside left in the stock market.
I’ve tabled this possibility before. It would simply take Trump or China calling off the trade war for a wave of optimism to sweep the world.
I’m sure this keeps a lot of money on the sidelines for the moment.
Will it happen, anytime soon at least? We have no way of knowing.
But the news has been fairly negative all year. The surprise is how well stocks are doing regardless.
We could muse on this all day.
Or perhaps it would just be better to find a prime bit of land and come back in 11 years, and see how rich we are?
Here’s why I say that…
An 8,140% return in 11 years
The Australian Financial Review reports on a family that acquired a 43-hectare parcel of land in 2008 for $330,000.
They just sold it — after it was rezoned for industrial use — for $27.5 million.
That’s a return of 8,140%.
It’s perfect proof that Australia remains a rentier economy. The present government will change nothing about this.
The bureaucrats can drivel on about increasing wages and productivity as much as they like.
Clearly, the path to wealth is to acquire strategic sites and — preferably — get someone else to pay off the interest. A friendly council can’t hurt either.
Let’s return to our psychology theme.
Stories like this can only seed ideas for more people to get in on the action.
They want some of those effortless riches too!
This is why I pay no attention to the housing bears gibbering on about a collapse all the time.
People will continue to chase the ‘free lunch’ in property as long as the tax system favours this behaviour.
Oh, and what’s this?
The ‘fractional ownership’ concept is rising again. Private company BrickX is said to be looking for growth capital to expand the business.
The idea is elegantly simple. Buy a house, apartment or building. And issue equity stakes to multiple buyers…like a share!
I’ve suggested before that I expect crypto to eventually dominate this market…but BrickX has been around since 2014, so it has an early start.
Watch this space…
The pitch seems easy. Let me have a go now…
‘You’re a potential first home buyer, but don’t have a deposit? Can’t get a pay rise?
‘Don’t let the market run way from you! Put your savings in the market while it’s on the up.
‘At least you don’t miss out completely while you’re working hard. After all, there’s no interest in the banks anymore!
‘You can invest as little as…’
Ready to sign up?
The consequences of these trends are predictable: Higher property prices, bigger debts and a new land boom brewing.