What Traders Can Learn from Property Gurus?

Auction Properties just like Trading

Today has been a fun day for me as I accompanied my dad (who recently retired from his day job) to a property auction. I used the word fun because this was an interesting experience for me due to the fact that I used to be a mobile trader and, now, a market trader. Buying and selling properties is a form of trading as well because, as I just mentioned, it involves buying and selling.

Beyond that, the trip to the auction house brought me back to ground level and reminded me a lot of the skills required to be a successful trader. Unlike being in the financial market, bidding for properties in an auction is an Art. This is an art because, while the property market is usually slow moving (you can place a purchase offer and the seller can decide to accept or reject at his own time), the auction house is one place where acquiring a property requires more than just submitting an offer.

While I can go on and on about how fun the auction was, I thought it’ll be a more useful if I could convert some of the insights I had today into useful trading lessons.

Traders Are Deal Makers Too

Just like buying an auction property, trading requires a certain skill sets (see article) as well. Bidders who bid for a property don’t just walk into an auction room with a pile of cash and start bidding for the properties. In fact, they do the complete opposite because, more often than not, these bidders would have completed their due diligence way before the bidding starts. Right? And does that not sound like something we traders do?

In this aspect, you can find similarities between an auction property bidder and a market trader, and that’s because we are both deal makers. We make every effort to find the best deal in the market and then we run through our mental list to check that this is a reasonable deal. Once we have that, we perform a detailed due diligence. Mind you, a due diligent is nothing more than a check of all the facts that is available to us and this can be based on micro or macro factors – your trading rules is the best example of this check.

Anyway, here are some of the lessons that are useful in order to become successful Deal Makers:

1 Trends Are Ever So Important

UK Property Up TrendWhether you’re in the currency or stock market, buying in a trending market is ever so important. This is also true in the property market and specifically in an auction.

Think about it, when you bid for an auction property, there is a thing called Information Risk. Just to be clear, I’m not an auctioneer nor am I a property guru, so by information risk I am referring to relates to the lack of information. And this can be due to the lack of time or the lack of resource to find out more information about the property before you bid for it. Sometimes, no matter how much due diligence that you perform, you would have missed out on certain information. Hence, in order to cover your downside, you can mitigate those risks by only bidding when the market is Trending.

That same theory applies in the financial market. Very often, by merely buying in a trending market, you would very likely make money and that’s the same even if you are an amateur. Of course, I believe that professionals take it a step further and the profits are multiplied very quickly when the marketing is trending. Either way, the trending market is where money is made.

2 It’s about Effort

If you have bought a property before, you realise that it takes time to understand how it works. Many property buyers know that and they are careful when they are in the property market. The irony is that market traders know the exact same thing yet they don’t take the necessary precaution.

In case you don’t understand what I mean, I’m saying that many new traders like to trade the market even though they know that it is as risky as the property market. They set up a trading account with $3,000 (or any other amount) and there they go. Of course, some take it as a way to learn and that’s fine. The problem really starts when they continue by adding more money into the account. They forget that it takes effort to learn and those efforts does not even require trading on a live account.

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The last time I spoke to a friend before she bought a property, she said that she spent about 18 months looking around, visiting exhibitions and getting herself exposed to the property market before she bought her first property. In fact, because of the effort she put into her work, it paid off handsomely as she bought a house that she loved and she got it at a bargained. Do you see where I’m getting to?

3 It’s Not about knowing Everything, It’s about knowing the RIGHT Thing

Right thing

Do you think that successful property bidders know everything about the property? The chances are, they do not. In case you’re not aware, do you know that many auctioneers don’t even have access to the properties that they are selling? Many bidders only get a Proclamation of Sales (PoS) from the bank or auctioneer and they can only see the property from outside.

Granted that this is not always the case, many of these bidders would have seen enough properties to get an idea of what they are getting themselves into. They’ve seen the profile of the property (based on the PoS) and they have rough idea of financial returns they are looking at. They can find out about the developer and they know the proximate layout of the property. They look at the neighbour’s house and they know what the size of the property is.

Again, the same can be applied in trading. This is no secret but, more often than not, it’s not about knowing every detail of the trade that you are about enter, but it’s about learning the things that gives the most impact on your trade. Once you have figured what that that RIGHT thing (see article) is, work on it and you will do just fine.

Conclusion

Traders can learn from the experiences of property gurus because trading should be done in a similar manner. Don’t ever rush into making a trade without doing your homework is the first lesson from me but, more importantly, try to put yourself in the shoes of a property buyer.

What do they look for and how do they priorities their facts? Once you understand these lessons, come back to the financial market and, seriously, wealth is just around the corner.

 

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2 Comments

  • Ian Simpson

    Reply Reply May 30, 2014

    Like the analogy and always good to compare trading against activities we’re familiar with.

  • Alwin Ng

    Alwin Ng

    Reply Reply May 30, 2014

    Thanks Ian, we clearly have a property guru in the house.. 🙂

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