In 2007 I experienced an epiphany. At the time it became my finest investment decision to date. I stopped listening to others advice as to where I should invest my clients money. After all in many cases those giving me advice held a vested interest in the decisions I made. I dared to question all the insurance companies asset allocation models and I strayed away from following modern portfolio theory. (modern meaning it was devised in 1952) Diversification works I was told. Stick with it. Do not sell all your commercial property funds, keep your eggs in baskets. Ignoring conventional wisdom worked because within three weeks all commercial property funds had shut the door to redemptions. Investors couldn’t get out and their savings were now locked into these funds for at least 6 months. In that time around 50% of their property investment value was wiped out.
I felt good. I had helped my clients avoid massive losses and it didn’t stop there. Going against the herd now wasn’t filled with quite the same angst. It helped me to reduce my clients share holdings by half and avoid much of the massive falls of 2008. We had plenty of cash to re-invest into shares now they had become massively cheaper.
We don’t take on many new clients anymore, only around 12 a year. The capital we manage today, our clients’ life savings, has grown to £42 million, and it has grown in the main by consistent investment returns.
A nice tale….but it is now history. What happens from here is more important to my clients now.
One of the all-time investment mistakes is becoming too attached to something that has done well. We become blinded to an investment’s shortfalls today, because we have a warm glow about what it has done previously. The converse is true. If an asset class has been the devil in the past, its easier not to even consider it today. Thus with commercial property. I have missed a relatively easy return above what we can get from cash (next to nothing) by continuing to avoid investment into commercial property.
Here are the reasons I’m ready to buy once again:
- Property funds today have been cleaned up. Redemptions ceased long ago and prudent fund managers now hold around 25% in cash to take advantage of potential bargain purchases or to pay money back to investors.
- There are commercial property funds available where the property they hold is all but fully let and rent is being paid on demand.
- The UK economy finally seems to be on the road to recovery and companies have never held so much cash. This would infer they should have little problem in affording their rent at the moment.
- Developed market shares seem high at the moment and it will require a return to fair value to attract further investment.
- Gilts and many commercial bonds seem over-valued too. With those asset classes losing rather than gaining investors.
- Investment money has to go somewhere if cash returns are negligible. We have enough in gold having recently taken the opportunity to top up.
- Unlike 2007 other financial advisers are not recommending cautious investors put all their life savings in there!
So prepare to see some UK commercial property fund investments feature in our portfolios.