There’s been a lot of bubble talk around recently, what with share prices surging and plenty of other markets looking frothy.
But one asset that you should definitely avoid is London property. On her blog this week, our editor-in-chief, Merryn Somerset Webb, notes that luxury property developer Nick Candy is “getting worried”.
Merryn’s concern is that this “so far ludicrously lucrative market might have begun to eat itself”. A recent report by high-end estate agent Savills reckoned that “the pipeline of prime schemes across London is entering uncharted territory”.
Now, it’s not the first time we’ve heard concerns about London property. While “betting against property in most of the UK over the last five years has been a clever thing to do, betting against it in London really hasn’t been”.
And “when prices keep rising and rising, it’s hard to be confident”. But one thing helps her resist temptation – a reminder from MoneyWeek regular Tim Price of “what happened to poor Isaac Newton in the South Sea bubble”.
Initially, Newton did well – “he bought in early and sold out when things look ridiculously expensive”. However, “as prices rose and rose and rose he lost confidence in his judgement and bought back in”.
Shortly afterward, “prices fell back way below the level at which he had bought. Then the level at which he had first sold. And then the level at which he had first bought”. He should have stuck to his guns, but instead squandered all of his gains and more.
This is a tale worth remembering, “for those moments when you have a sudden attack of London price FOMO (fear of missing out)”.
‘Ellen12’ agrees with Merryn: “there is no logic to what’s going on in London right now. I think there is wild panic and fear of never being able to buy any kind of squalid home”. However, ‘Top Hat’ thinks that, “London’s market is a matter of supply and demand and there’s far more demand than there is supply”. ‘Gamesinvestor’ counters by pointing out that, “there is no shortage of demand and never has been in Japan for 24 years but that has not stopped prime Tokyo property falling by 75% and staying there pretty much for most of that time”.
Have your say – and check out the chart depicting Sir Isaac’s painful learning experience here.
What level will the FTSE 100 be at by the end of 2014?
Frankly, your guess is as good as mine. And yet it doesn’t stop dozens of brokers from trying to their luck at this time of year, using oddly specific numbers.
Of course, these are just sales messages. It’s people who sell stocks telling us that stocks will go up by roughly the same amount that they did last year.
But it doesn’t mean that forecasting is a waste of time, says my colleague John Stepek in Money Morning. “There’s one set of forecasts that you shouldn’t ignore – your own”.
John’s point is that “every asset you own is in your portfolio for a reason, even if it’s just inertia”. So you should “be aware of the assumptions underlying your portfolio, and whether any of them are out of date”.
So take some time this Christmas to pull together your assets, and look at your exposure. You may be surprised to learn “that you now have a much larger proportion of your investment money in a single stock or market than you realise, or consider wise”.
If that’s the case, you need to rebalance. Consider your portfolio as it is, and “think about where it should be – your ‘ideal’ asset allocation”. Sell what you’ve got too much of, and buy what you haven’t got enough of.
One tool that could help you is Phil Oakley’s Lifetime Wealth newsletter . This focuses on “building a portfolio that should be suitable for most investors with a reasonable length of time to go before they retire”.
As for John, he already knows that he wants more exposure to Japan for next year. Earlier in the week, Ed Bowsher explained the ‘buy’ case .
"The only financial publication I could not be without."
John Lang, Director, Tower Hill Associates Ltd
How to profit from Latin America
As well as Japan, you might think about looking at Latin America. James McKeigue, who writes The New World newsletter, has long “been a big fan of the Pacific Alliance trade group of Mexico, Chile, Colombia and Peru”.
“These open, dynamic countries are the best bet for foreign investors in Latin America”. Indeed, the group has been so successful, that “Panama and Costa Rica are also planning to join the Alliance”.
However, “the most interesting development has been the reaction of countries outside Latin America”. At the Pacific Alliance Summit in May, “the leaders of Canada and Spain were busy pressing flesh and trying to drum up business for their home companies”. They also decided to be become observer members.
And now the UK has followed them. While the UK and Canada “might not seem like the most natural match”, the hope is this could lead to “a subsequent free trade deal”.
James is convinced that as a result, we’ll “see more and more investor interest in the Pacific Alliance countries”. Indeed, “the Netherlands, Germany, Italy, France, Portugal, Turkey, Australia, New Zealand, China, America and South Korea have also jumped on the bandwagon”.
This “will lead to an influx of capital” into the member states, which will help fund “huge infrastructure programmes”. And opening up to foreign competition will make local firms more competitive, making life better for consumers. James notes he has also met “plenty of local businessmen who admitted that working with European or American firms had forced them to make some of their business processes more transparent and accountable”.
This “expansion of the Pacific Alliance is another reason why I think investors should gain exposure to its member countries”. The best option “is to build your own portfolio”, using the “good mix of strong local firms that trade in the US or UK”. To find out more, sign up to his newsletter.
Buy into this property firm
While the London property market may be going through a bubble, Paul Hill thinks “the rest of Britain has been left behind”. Indeed, “last year, property prices in places such as Salford were down 16.1% from the peak”.
Yet the newest data show that house price expectations for next year are at their “highest level since the noughties’ property boom”. As a result, “money is being ploughed into sites all over Britain”.
And thanks to cheap money, Hill thinks there is “little danger that house prices won’t continue to trend higher, as the rest of the UK catches up with London”.
So how can you benefit? Well, the bad news “is that it’s almost impossible now to find anything decent to buy on a reasonable rating”. However, Hill thinks that he’s “unearthed a real hidden gem”.
It’s involved in building engineering and design. And as a ‘late-cycle’ business, it hasn’t taken off yet. However, “some of its customers are now enjoying their busiest period since the financial crisis began in 2008”, which will be great news for the company.
There’s more details in Paul’s newsletter, Precision Guided Investments. To find out more, click here.
Profit from the future of transplants
This week, Tom Bulford looked at organ transplants in his Red Hot Biotech Alert newsletter. “Worldwide tens of thousands of people are hoping for new livers, kidneys, hearts and lungs”.
Sadly, “many will literally die waiting”. And even if they are among the lucky ones to get a transplant organ, the system is far from perfect. To deal with the problem of organ rejection, “have to take a lot of immunosuppressant drugs”, which in turn “make them vulnerable to other complications”. Things would be much better, “if we could simply take a replacement organ off the shelf and plug it in, safe in the knowledge that it would not be rejected”.
The good news that, “today this dream is becoming reality”. One company has developed replacements for tracheas (windpipes). These are created, “by layering the patient’s bone marrow cells on a special ‘scaffold’”. The scaffold is designed to fit the patient and “new tracheas can be made in a matter of days”.
An added bonus is that, “because they use only the patient’s own cells, they should not be rejected”. You can find our more about this amazing discovery and the company behind it in Tom’s newsletter.
To hear about other bits and pieces on the internet that have amused us or made us think, sign up for our Twitter feeds – we’ve listed them below.
Have a great weekend!
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