There was a nice contrast in the even more expensive Financial Review on Wednesday. On the front page was property investor Paul Cleary, looking to offload his terrace in Rozelle, Sydney.
Had the RBA reduced rates on Tuesday as was widely anticipated, Cleary had plans to increase his reserve price by $50,000. But the fact that rates stayed put wasn’t a disaster. Cleary was ‘still looking at great capital growth’.
On page 7, Christopher Joye’s opinion piece had, like, numbers and stuff. Data I believe they call it. Joye compared the last property boom over a decade ago with the current situation, using a chart from UBS labelled ‘Biggest housing bubble ever’, a clickbait title I’ve happily incorporated above.
Here’s the key paragraph:
“While there were serious concerns in 2002-03 about mounting indebtedness, all the key measures the RBA publishes on this subject are far worse today. The household debt-to-disposable income ratio hit a new peak of 153.8 per cent in March (the previous ceiling was 152.7 per cent in September 2006). Australia's household debt-to-income ratio is now 19 per cent above the 129 per cent level that raised eyebrows in 2003.”
The two likely reactions to these stories reveal a key point about investing in general and value investing in particular; namely, that despite a wealth of evidence that it works and untold books and publications like Share Advisor that show people how to do it, most investors can’t or won’t.
The front page story on the successful property investor hit all the emotional buttons. There’s a picture of what looks like a newly renovated terrace. On the shoulders of the contented investor sits his feisty son, a picture of familial bliss. Inside there’s another image, this time of mother and son on the balcony. What a lovely balcony it is, too.
The copy subtly hints at the bigger, unasked question: If Cleary could make an extra $50,000 just from a 0.25% fall in rates, imagine what he’s making all up? It’s unsaid, it may even be unintentional, but it’s there alright. This story is all about the fear of missing out, about what the Cleary family is about to make and what we’re not. A Paddington agent is wheeled out to nail home the point: ‘Everything is going crazy,’ she says. Yup.
Read the story for yourself and then examine that sensation in the base of your stomach. Feel it? There’s a little jealousy in there for sure, but mainly it’s that nagging sense you’re stupid for not ‘doing a Cleary’, that you’re the crazy one for not punting a negatively-geared investment loan on the craziness.
After that, most readers wouldn’t make it to Joye’s piece - they’d already be on the blower in search of an unrenovated inner west terrace. But even if they did, they probably wouldn’t make it all the way through. This is a dull, data-driven story with a chart, not a happy family about to make a few hundred grand.
Joye’s story is a valuable piece of commentary that will help readers make more enlightened decisions. It’s on page 7. The Cleary story will do the opposite, but is on page one and page 7, with images on both. What’s going on?
Newspaper editors know what many investors don’t; that emotion – in this case greed - beats facts every time. We also know that in investing it’s the opposite.
Whilst humans are short thinking and long feeling, successful investors overcome those inherent biases, choosing the rational over the emotional. Investing is a game won and lost in the head, and the way to get better at it is to practice.
Wednesday’s Financial Review inadvertently offers a valuable lesson on how to win at it, or lose, depending on where your bias lies.