Lies, Damned Lies and Statistics

Peter Wu

16 July 2010

‘Lies, damned lies and statistics’ is a commonly-heard phrase describing the persuasive use of statistics to bolster weak arguments, and the tendency of people to disparage statistics that do not support their positions.

To that I must add hot air, damned hot air and forecasts. We often hear about predictions made by experts on the property market. No doubt, they do have some influence on the market too, unfortunately. When I first started dabbling in share trading in late 80s, I took all the share-broker’s reports and bulletins as gospel. I bought into Air NZ when it was first listed almost certainly because of the glowing report prepared by a share-broking company, also its under-writer! Little did I know! Early in my career, I also took the forecasts by economists line hook and sinker. I wish I know now what I knew then.

The New Zealand Herald, a leading newspaper in New Zealand, runs an article at the beginning of each year in which it invited leading share-brokers to select 10 shares which in their view would perform that year, in other words, winners. Then 12 months later, the Herald compared their predictions with how these shares actually performed. The results? Disappointing at best and downright miserable at worst. Any Tom Dick and Harry, or Chan, Wong or Lee can almost certainly do the same or better.

During the height of the New Zealand property market boom in 2007, there had been many expert forecasts on the property market, with many predicting that it will soon run of steam and correct itself. While some are qualified to speak, many aren’t. Even those who are qualified to speak are making a lot of noises as if they were firing a shot-gun, achieving saturation coverage with little accuracy. Where are they now?

You don’t need to be a rocket scientist to make a prediction on anything. I for one can predict a balloon will burst if you keep blowing into it. I can predict a general price rise given the hefty rise in petrol prices. I can predict a building boom, and increase in consumer expenditure in the lead-up to the Shanghai Expo, the Winter Olympics in Vancouver at the beginning of this year, or the 2010 Soccer World Cup which just ended. Is that rocket science?

In a free market economy, prices have their own way of finding an equilibrium, based on the simple principle of supply and demand. When you have too much of something, prices will drop. The same applies conversely.

I am an advocate of a style of investing called Contrarian or contrary Investing. It basically says that you should not follow the crowds. You research the market, you do your own thing, and you find opportunities in those areas vacated by the herds. Any adverse property news presents opportunities. Just look at the Chinese word for crisis: 危機. It has the word opportunity in it.

Adverse news scares off a lot of potential buyers and speculators. Because the demand is likely to be weakening, prices are likely to become softer. Sellers are far more negotiable. Chances are you can pick up a bargain or one with value for money. So never mind what people say or do. You do your own research. This is what I will do if I were you: seek out quality properties and drive a fair but hard bargain.

There is money to be made in any kind of market environment but you need to research and understand that market first. Who says making money is easy? Who says money grows on trees?

In the property business, as in any business, quality always comes through. As long as you don’t go for the shoe-box sized, badly designed, poorly built properties, your purchase should weather the storm and reap the benefit in the long term.