10 tactics to survive the 2008/2009 downturn...
Hey guys,
Some of you may not know but we are on the process of expanding YPC into Australia and New Zealand. This has meant Simon and I have been investing many long hours late into the night to setup and run the Aussie/Kiwi side of the business.
Anyway it's coming along and we expect by October we will be up and running.
Anyway I just finished a phone interview with an Aussie reporter who wanted my opinion on how to survive the economic downturn. As I spoke I wrote a few notes on what I was saying so I thought I would give you the benefit as well as the Aussies, which incidentally are in exactly the same boat as the UK at the moment, except their interest rates are about 9%-10% and rising.
Anyway here are some of my notes, I intend to write another guide about this with a lot more detail but I thought it important to get it out rather than waiting.
So the ten survival tactics are:
1. Read beyond the headlines
For every dramatic sensational headline you see in the newspaper on the radio or TV make sure that you read the whole thing. More often than not the headline will be 'Prices drop 30%' but once you read the text it will say 'if this continues, if it gets as bad as the nineties' or one the many permutations of this scaremongering headlines.
There is always a perfect and plausible fundamental explanation as to why it probably won't happen.
Remember the headlines are there to attract your attention and the negative 'sky is falling in' sells better than the 'everything is fine' headline. It's just plain old boring human nature at work - Pain sells better than pleasure.
2. Take a long slow breath
Before you run off and slit your wrist just simply take a deep breath and ask yourself 'How does this really impact me?' You may be pleasantly surprised to find that most of the doom and gloom doesn't actually really concern you. Try NOT reading the papers or watching the news for a week. If by the end of the week you are still alive and well then hopefully you have seen how little effect of the negative press really has on your life. If the sky has fallen in then I guess I was wrong! Although I think we both know what the result will be after a week.
Remember whatever happens take a long slow breath and get on with your life.
3. Remember that statistics are based on averages.
That 7% drop that everyone is talking about, of course it is in your street, in fact they are talking about your house aren't they? It never ceases to amaze me at how humans can take a general statement and personalise it to our lives. Again its just plain human nature. The flip side of this is the human ability to detach. We are so very good at believing it's someone else's house not ours.
The bottom line with all of these negative statements is that they are based on averages. Read into them a little more and you might find that your house is not an average house, that your street is not the average street.
4. The 7-10 year cycle always has a downturn.
The shock!!! The horror!!! 'The property market is having a downturn, why it's never done that before!' Well that is not since the last cycle. You guessed it, it has all happened before.
For some strange reason we all act surprised when the property market downturns. Let's be absolutely clear, the cycle will always have a downturn, always... The reason is simple! Greed... We all get far too greedy and eventually this greed has to be paid for. Again it's just the basics of human nature and human nature hasn't changed for thousands of years.
So when you read the paper next week (that's after your weeks break and the sky hasn't fallen in) understand that this downturn is as much a part of the process as the boom years, which incidentally come hot on the heels of the down turn.
5. Cash flow is king
If you have the cash to see you through this downturn then you can sit back and forget about Mervyn King, forget about Gordon Brown (I think he still runs the country although I haven't heard from him for about a year.) You can even forget about the value of your house because with cash flow all things are minor and insignificant.
If you don't have it or its limited then closely follow it, track it and make sure that you act sooner than later to secure it.
6. Know your indexes
HBOS, Nationwide, land registry, RICS, CML, Rightmove, Findaproperty they all track different data to give them a picture of what the trends are.
RICS will tell you what things are valuing at, CML will tell you what's happening with mortgages, Land registry will provide the gross prices of property.
They all use different data to produce a different result. Make sure that you compare apples for apples! Let's face it journalists trying to get your attention will use the data from one index today and then the data from another tomorrow. This is why house prices can be falling and going up at the same time. It's all about the indexes they are choosing to use.
7. What is an economist!
An economist is a highly academic professional who understands the relationship of things within a political, social and economic framework. They study in detail the relationships between interest rates, wages, unemployment, government spending, consumer sentiment, share prices, consumer debt, consumer spending, household incomes, the economic cycle, exchange rates, foreign debt, and about 1000 other variables.
Based on their understanding of these things they make judgement calls about various things that affect their jobs. You see very few economists that are quoted in the press are actually totally independent. Most work for banks and financial institutions who have hired them to interpret all of the economic, political and social data and make predictions about it.
Now as humans we will always attract that which we are seeking (it's called the law of attraction) so if you are working for a bank you will attract the data (or 'spin' the data) which supports your cause and therefore present this angle on things.
This can mean that using the same data you can get different results. The question is what data you believe. This is one of the reasons I have become very experienced in interpreting economic data. My school economics and accounting teachers would be proud to know that these are the two subjects from school that I use most in life.
8. Know your product or trust your broker...
I cannot stress enough about the relationships that you must build and nurture. The better your relationships, the better the advice you will receive and the more certain you will be throughout this period of 'uncertainty'. I say that word 'uncertainty' like this because if you have done everything I have said in my blogs you will have absolute certainty and the uncertainty won't exist.
The point is that building this relationship will enable you to be certain about the products on offer and therefore you can make fully informed decisions throughout this period.
So many people are concerned in the 6 months leading up to a remortgage because they are hearing the negative and pessimistic news but not checking the reality. Speak to your broker and rest easy and if it will save you the sleepless nights remortgage early to secure your cash flow.
9. Take action early, stress later
Following on from the last point, if you are not passing my 'Sleep Test' that's the one where 'if you don't sleep a full night of restful and meaningful sleep waking up refreshed and enlivened then you either need to stop drinking so many coffees or you need to take some action.' The earlier the better.
Let me make myself absolutely clear...
If you aren't sleeping because you are worrying then you had better take some action as early as possible. If you then find out that there is nothing you can do at the moment then stop stressing, set a definite date to follow up and forget about it. Now we both know that the game of property is an emotional one so I would be stupid to believe that you are going to full forget so this is where my next point comes in.
10. Who do you call, mentors
So you read the headline and all the text, you took a long slow deep breath, you realised that the statistics are all based on average and you aren't the average, you know that every cycle has a downturn, you treat your cash flow as king, you understand and can read the various indexes, you know that economists just play with models and data and come up with different results from the same data, you trust your broker BUT you still think its all turning from bad to worse. It's time to call someone and the ghost busters aren't going to help you with this one.
These are the times when you need to have mentors that you trust who can direct your attention and your actions towards solutions, not emotions. Call them, sit with them and get very clear about what you options are.
I spend hours and hours every week developing clear strategies with people, giving them certainty and allowing them to pass the sleep test. It's amazing the difference an unemotional, detached, fresh pair of eyes can have on the situation.
As always the team is here to guide you to solutions, Simon and I have years of experience with hundreds of clients. We are here, regardless of whether you have bought, are in a position to buy or whether you are just sleeping a little uneasy. Feel free to call us on 0207 812 1255 or directly on our mobiles.
Live with Passion,
Brett Alegre-Wood
PS. I hope you all picked up on the amount that human nature has to play in the economic downturn and in fact every aspect of life. Human nature is very predictable and therefore you can apply these lessons and make quite accurate decisions based upon it.