Before I answer the question ‘Here’s how to pick the top or even bottom of the market?’ What do Ash Barty, Keith Miller, and Shane Gould all have in common? Yes, they are all Australian, but they are all athletes who retired at the peak of their careers. Keith Miller famously remarked “I wanted to retire when people were saying ‘why did you?’ rather than ‘why don’t you?'”
Thoughts behind picking the bottom or the top of the market
After quitting the most popular show on TV, Jerry Seinfeld later said that the only way to identify the top is to experience the decline, which he had no interest in. Would Seinfeld have won more awards and drawn a bigger audience or declined like so many other sitcoms before them, we will never know?
Few people have this mentality of quitting at the peak because opportunities are so scarce and people want to extract as much as possible from a good thing. From this pursuit of the peak, we go past it and experience the decline. The only way to know the boundaries is to shoot a little bit past them. This is the reason why we have booms and busts, expansions, and recessions. When there are no recessions, people feel more confident and take more risks, when people take more risks, you get recessions.
The underlying factor that drives our decision-making is not the facts that we read in the newspaper nor learn about in our daily interactions. It’s the emotions derived from how we interpret these facts and how we perceive their impact on the future will be.
Picking the Top of the property market
If we read in the newspaper, that in 2021 Sydney house prices rose 29.6 per cent (a fact). What will buyers do knowing that it will cost them 29.6 per cent more for a property than it did last year (an emotion) If we feel optimistic when making our decisions, it will be different from if we feel uncertain. Do the buyers still see value for money? Do buyers want to avoid missing out? Does the need for a house outstrip the costs involved? Emotions are something that you can’t predict with a mathematical formula.
What will happen to house prices in Sydney next year? Have we reached the peak? Who will win the election? The only way to answer these questions is to know the mood and feelings of people when they make make these decisions. Are they optimistic? What do they want to believe? This is impossible to know. Do you know what mood you’ll be in this afternoon?
The only way to find out the limits of people’s emotions and moods is to push past them and turn around and see they we’ve gone too far.
This is why we can only ever know the peak once we have gone past it. It’s easier to draw straight lines when forecasting than to analyse and predict how people might change their attitudes and adapt their behaviour in the future.
The applies the same when trying to find the bottom of the market.
Did you sell at the peak? Did you know it was the peak before you made the decision? Was your decision to sell your property based on knowing it was the peak of the market?