»
Sep 25, 2007:
According to Property Loan Stock Association News (April 2007) the retail investor is an increasingly talked about element of listed property investment.
But who is the retail investor? What are their investment objectives and habits and why are they mentioned frequently in conjunction with volatility in the listed property sector?
"I have always compared investing in the markets to my childhood family vacations. The journey was frequently bumpy and somewhat painful, but more often than not we reached our destination. Buying a stake in a company on the exchange provides for much the same experience; markets go up as well as down!" says Stanlib asset manager Evan Jankelowitz.
"Yes, there will be moments of pain and anguish, but if you stick it out for the entire ride, the chances are that you will reach your objective," he says.
"So then why do investors turn around half way into their journey when they hit a speed bump? Well they don't! This is because investing is a long-term undertaking. The average person however, who we refer to as the 'retail investor', often acts contrary to the pure practice of investing and never leaves the city limits.
"There are two reasons for this: they are either misinformed as to the nature of the investment or in a position where emotions dominate their investment decisions.
"It's all in the name; this property is 'listed', and like any listed instrument its capital values are subject to the demand and supply dynamics of the market.
"This phenomenon is amplified by the fact that the sector is relatively illiquid (smaller, perhaps not representative, trades can have a significant impact) and the level of hasty retail investors is prominent.
"Investing in listed property for the right reasons means purchasing it as a component of a diversified investment portfolio or holding it for its growing income stream and the potential of long-term capital appreciation.
"In the short-term, irrational and even unjustified events can distort prices (as we saw in the 25% fall in listed property prices in mid-2006). However, over time sanity does prevail and the true value of an asset should come to the fore (we saw property recover by over 50% since its drop last year).
"Emotional investing doesn't help either. Together with their brokers, thousands of individuals set up long-term investment plans to meet their respective needs. Most of the time these investors understand the prospect of short-term volatility and agree to focus on an end goal.
"However, when prices ebb and flow and the butterflies start crashing into the stomach walls, logic flies out the window. My advice is that before any action is taken one should consult their original investment objective.
"Listed property has justified its merits. However, it isn't the elixir of financial prosperity. Used correctly in a balanced portfolio or held for its long-term benefits of attractive annuity streams and potential capital growth, listed property should make for a satisfied investor.
"The problem lies in the case where investors react to short-term market movements instead of keeping to their original long-term investment horizon. As we all know in every Disney classic we have to sit through the entire screening to reach the happy ever-after."
