Are You a Black Sheep?

Posted by Luke Graham

Research is a loose word that is quite interchangeable. When a graduate takes the step toward a career in their chosen industry, they must now navigate a minefield of ‘analysis’ and ‘research’ positions that are not at all what the title would imply.

By the same token, there is also research and research. Often, the Blue Wealth research team is asked to confirm the research of other organisations for our clients, business partners and developers. This is always a rewarding task as it allows us to grasp a firmer understanding of what is being communicated to the marketplace.

Sadly, we have found that statistics and research are often used in the wrong manner to prompt investors to direct their activity in a particular way. Examples include inferior or outdated statistics, misleading statements of the implications of particular statistics, and poor sources of data among others.

This is only effective because of the herd mentality.

Often, people will disregard correct information if it is more comfortable to follow incorrect information. Examples of this can be found in different contexts throughout human history and persists to this day. Remember in school when getting in trouble by yourself was far more uncomfortable than you and your friend getting in trouble together? Friends would even implicate each other in order to relieve themselves of the discomfort of isolation.

This survival characteristic engrained deep within us works both in our favour and against us. In property investment, the fear of isolation stops many from executing a plan when they should, which places them in the herd. This is proven through two specific characteristics of the property clock: sale volumes and price growth.

We know that the strong majority of property transactions occur in the boom of a property cycle because, rather than following the research, the herd are more comfortable when ‘everybody else is doing it’. It cannot be wrong if everybody else is doing it, right?

The same goes for price growth. Price growth (read: purchasers paying a premium) occurs in the boom of a property cycle. You don’t get strong growth without a herd of white sheep wanting to buy your … wool.

The herd mentality is fantastic and will exist into the foreseeable future. It provides the select few black sheep with the best opportunity to lead the herd and make a stronger long-term benefit. It is up to the individual whether they prefer to take action when others don’t and reap the rewards or whether to be part of the herd that rewards the black sheep by paying them three bags full for their innovation.

Posted by Luke Graham, on 16th Dec 2014