Many people have made money from property investment. However, there’s huge potential for the stock market to deliver long-term gains. And, as I see it, property investment skills are transferrable to the stock market.
Striking parallels
I had a penny-drop moment realising the stock market is similar to the property market.
The property market tends to be cyclical with the prices of houses, bungalows, flats, and other dwellings moving up and down. But despite cyclicality along the way, property prices have moved higher in a long-term trend.
And the stock market also tends to be cyclical. The prices of stocks, shares, and funds have a history of moving up and down. But, as with property, the long-term trend has been for share prices to move higher over time.
So, the property and stock markets themselves tend to operate in an almost identical manner.
Meanwhile, when we buy a property it can be called an asset. And after we’ve bought it, the price of that asset will fluctuate. And it will usually follow the cycles and trends of the overall property market.
In many cases, a property will sell for a much higher price after we’ve owned it for several decades. And that’s because of the long-term trend of the market. However, briefer periods of ownership risk mis-timing one of the shorter-term cycles. And that can lead to people sometimes losing money on their homes when they sell.
However, it’s possible to learn skills in property investing and attempt to increase the chances of making money. For example, people often try to time the purchase of a property near to a cyclical bottom in the market.
And another technique aims to buy a fixer-upper. People often buy a property that needs renovation in the hope that carrying out the upgrading work will add to its value.
History shows that combining both those tactics can lead to decent gains from property over time.
Shares are just like houses!
But it’s possible to make money in the stock market with a similar strategy. Right now, for example, we’ve just seen a bear market. And that means shares could be near to the bottom of a cycle — although nothing is certain or guaranteed. But I’ve acted on the assumption that we are near the bottom. And I’ve been buying shares.
The underlying business behind each share is the asset. And many businesses have endured a bit of a bashing lately. They are distressed. They are ‘fixer-uppers’, just like neglected houses can be in the property market.
So, I’ve been buying fixer-upper businesses near what I think is the bottom of a stock market cycle. And I’m putting my faith in the management teams running those businesses to ‘renovate’ them and increase their earnings.
Meanwhile, there’s some evidence in my portfolio the strategy has started working. However, it’s early days. Nevertheless, among my top recent performers are names such as Greggs, Dunelm, Watches of Switzerland, Harbourvest Global Private Equity, Investec, and Foxtons.
I don’t know if my recent success will continue. But thinking about the property market is helping me to be a patient long-term investor while aiming for a million from shares.
