Shares soar over bricks'n'mortar - 28th JULY 2006

Michael Pascoe - Futurewealth magazine

The world of investment expos and seminars sometimes seems to be filled with two kinds of performers: the nice, polite types who run through their spiels with gentle charm, and the up-beat motivational speakers bent on empowering the audience to realise their wealth genes.

Sometimes the polite types can be a little boring, a touch of the old-school accountant about them as they trot out graphs to demonstrate the miracle of compound interest. And while I know it can be really, really important, any explanation of any of the finer points of our zillion-word Tax Act will have me running for the exit if I don't fall asleep first. (If I wanted to know about the Tax Act, I would have become an accountant. It's because I don't want to know that I pay one a whole pile of money.)

But it's the motivationals you have to hate. There's something rather unseemly about being wildly enthusiastic about becoming filthy rich. More often than not, there's a direct correlation between the level of enthusiasm and the speed with which you're supposed to get rich as well. As in all matters of religion, if it works for you, well, that's fine as long as you don't hurt yourself or anyone else - but I prefer my religion to be concerned more with God than Mammon. If you have to be whipped into an evangelical frenzy before you'll get off your backside to provide for your future, I somehow think you're on the weaker end of the determination spectrum to start with and will have a high probability of going astray when the clapping's stopped and the circus has moved on.

Peter Thornhill, principal of Motivated Money, therefore comes across as a refreshing grouch if you hear his presentation. While a very pleasant fella off the stage, give him a microphone and a room full of people interested in investment and he's suddenly not very polite at all, bluntly challenging and chiding his listeners and berating the mistakes they stubbornly make by not taking his advice.

Thankfully there's humour along the way as well, but Thornhill leaves no-one in any doubt about his key message - you're a mug to get caught up in residential real estate investments when solid, dividend-paying industrial shares are the way to go. He also has a low opinion of fixed-interest, but it's the real estate element that tends to cause sparks.

There are a lot of people who don't like to hear it - especially those flogging investment properties and the mini-industry that feeds off Australians' love affair with bricks and mortar. Individuals can be antagonistic though as well, feeling the need to justify the investments to which they're heavily committed.

Thornhill doesn't care. Perhaps as the investment industry veteran is comfortably semi-retired, he does his stuff on a strictly take-it-or-leave-it basis. The only thing he has to sell along the way is a book (Motivated Money, orderable from www.motivatedmoney.com.au), rather than any off-the-plan flat, investment fund or tax-driven rural scheme.

Thornhill doesn't even like listed property trusts - a sector that has performed very nicely indeed over most of the past decade. He admits to having two LPTs in his own portfolio, but only by default - he copped the property "lead in the saddlebags" when Westfield Holdings and Macquarie Goodman stapled their shares with the property trusts they managed. The out-performance of Westfield Holdings over Westfield Trust is just one of the arguments he uses in favour of industrial companies over real estate.

(And in the midst of a massive resources boom, Thornhill gives miners a wide berth, taking comfort from the long-term trend of resources prices declining despite the occasional rally and not liking the miserable dividend record of the sector.)

There are still some people who believe (or pretend to believe) that residential real estate performs better than industrial shares over time. Occasionally someone comes up with a study that claims to support it, but I'm yet to see one that stands up to cursory examination.

Aside from the brutal numbers, perhaps Peter Thornhill's most telling argument is the charge that, if real estate was the superior investment the property spruikers claim, the management and boards of Australia's major companies should all be sacked for incompetence. Coles and Woolworths should liquidate their retail holdings and buy houses. Instead of lending money to other people to buy real estate, our major banks should all be doing it themselves. Rupert Murdoch's been a fool building a media empire, he should have been buying units instead.

I think Mr Thornhill has a point - but I'm nowhere near a comfortable retirement yet myself, so I can't be quite so dogmatic. Whatever the logic of it, the reality is that some people just can't help loving real estate and feel anxious about the whole idea of owning shares. They like to see their investment, visit it, pat it - and also spend a lot of money maintaining it. They somehow don't get the same satisfaction by walking into Woolworths and thinking: "I grabbed a bunch of Woolies shares when they floated and they've gone through the roof - and cost me absolutely nothing to maintain."

In defence of such folks, the main thing about building future wealth is to at least do something about investing. A good industrial portfolio beats housing, but real estate is still much better than leaving it in the bank or not saving anything. The crucial factor in the wealth creation game of course is that you have to play the thing in some form to have any chance of winning.

Often cold, hard logic is defeated by our human frailties. There are those who argue we'd be better off renting and investing the difference between a mortgage and the rent in the stock market - but the trouble is that a new car comes along, or a holiday, or a change in fashion and that money that should be invested gets sidetracked. Thus the best thing about buying your own home is really that it's a form of enforced saving - however tempting that set of wheels, the bank must still be paid.

I admire Peter Thornhill's single-mindedness - but I don't have his discipline. I believe what he says about investing in real estate vs a good industrial portfolio, but there can be other factors involved that aren't purely financial. And I just like the fact he gives a seminar that's not boring and he doesn't claim you can get rich quick.

We have state lotteries offices for that instead.


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