What You Can Learn About the Share Market from a Real Estate Agent

Real estate agents cop it on many fronts.

Dressed to the nines; flitting about from one showing to the next in a sporty European hatch.

Throwing out TattsLotto-sized numbers like confetti in the wind. Effortlessly quoting million-dollar price tags like it’s all just a game of Monopoly.

Yet, for all the clichéd images, some agents know a thing or two. Not just about the next hot suburb, or the latest interior fashions…although, you would expect them to know something about those.

However, it is something much more basic than that.

Through their own experience, some agents have come to know a thing or two about something else…expectations.

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Many years ago, there was a television interview with a real estate agent. The chap certainly was not young. And he struck me as a bloke who might not necessarily get about in a flashy car.

But there was one thing he had observed from many decades in the game.

That is, when it came to young would-be first homebuyers, many (though not all) wanted to start off in a home in which their parents had finished.

In other words, what might have taken their parents a lifetime to achieve — and possibly several ‘trade-ups’ along the way — was the standard of house they expected to live in from the start.

Of course, the agent was making a generlisation. It certainly does not apply to everyone. But it was an interesting observation from someone who had spent a lifetime at the property coal-face.

You could argue that it is a similar story with cars…and holidays.

Having the Right Expectation of Your Investments

Expectations also play a large part in other types of investing, like the share market.

Whereas first homebuyers might have false expectations about the standard of house they want, and can afford, share investors can also have a false expectation about the shares they own. Particularly if they have owned shares for a very long time.

For one, they might expect shares that have performed particularly well in the past, to repeat that same performance into the future.

One class of shares that highlight this in particular are bank shares.

From the 1990s, banks shares grew at phenomenal pace. But it wasn’t just about rapidly growing shares prices.

Dividends also played their part. The size of banks’ dividends grew along with their share prices. Those that got in on the Commonwealth Bank’s float would now be sitting on a near 100% annual yield.

But the thing with CBA is that its share price has grown all of 25% in total, since its pre-GFC peak in 2007. In other words, its share price has barely matched inflation in all that time.

Mind you, CBA is the best performer of the Big Four. The other three have fared much worse than this.

What’s more, since 2015, CBA has continued to trade sideways. That’s despite rallying after the handing down of the royal commissioner’s report. CBA is still a long way from its all-time high.

In the two decades from the 1990s to the GFC, CBA was a growth stock.

Similarly, after the GFC meltdown, CBA’s shares rallied strongly, more than doubling in 12 months. They then doubled again, but this time it took three years, from 2012 to 2015.

The post-GFC spike came off the back of an oversold CBA bouncing back to a level of equilibrium. It was a bubbling property market that propelled CBA higher in the other period, beginning in 2012.

Over that time, CBA transformed from a growth to an income stock. Along with that, its expectation from shareholders has changed.

Growth Stocks or Yield Stocks?

While capital growth is always welcome, banks have become yield plays.

It is not only bank shares, though, where expectations have changed. Plenty of the other big blue chips — like the REITs and supermarket behemoths (like Coles and Woolworths) — have also become yield plays. No matter how much they strive for growth.

Though, having spun out Coles Group, Wesfarmers Ltd is trying to rejig growth in its bid for rare earth miner, Lynas Corporation.

And Telstra, having announced plans to cut a swathe through its costs — including mass retrenchments — is aiming to reinvent itself too as a growth stock.

However, apart from a handful of examples, many of the big blue chip stocks have stagnated into purely yield plays. Given their size, and the (limited) size of Australia’s population, perhaps that is inevitable.

Of course, yield plays are fine if income is what you are after. Especially if this is what you expect from your investments. With term deposit rates so low, a steady dividend flow is worth more to some than just capital growth.

However, if growth is what you are after, then your expectations might lie elsewhere. These are stocks that might not belong inside the ASX 50, but are still big and growing businesses nonetheless.

One way to start is to google a list of stocks in the ASX200 or 300. Start with the big-cap stocks and work your way down. Among that list, you will find stocks that you have never heard of.

Amongst this group, you might also find something else. That is, a swag of stocks — ones that you won’t find on the broker buy lists — that more accurately reflect your own expectations from the market.

All the best,

Matt Hibbard,
Editor, Options Trader

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Matt Hibbard is Money Morning’s income specialist. With nearly three decades in the markets, Matt has traded just about every asset class there is. The one thing that has stuck with him over this time is a very simple premise. That is, it’s the cash a company generates that ultimately determines its value. Sure, some stocks might fly away to multi-digit gains. But unless these companies can convert the ‘story’ into real money, the market will eventually find them out. And when that happens, the share price quickly falls back to Earth. Matt is also the editor of Options Trader, where he shows subscribers how to use basic options strategies to generate income. This is income they can generate on top of regular dividend payments. Matt doesn’t play the prediction game, where the aim is to be proven ‘right’. Instead, his goal is to generate as much income as he can for his subscribers, irrespective of whether the market is going up or down.


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