Hi there. My name’s Ben Everingham and I’m the director here at Pumped on Property and in today’s video, we’re gonna do a book review, actually on Phil Anderson’s – one of Australia’s leading economists book, The Secret Life of Real Estate and Banking.
G’day there. My name’s Ben Everingham and I’m the director here at Pumped on Property, a buyer’s agency who buys properties in New South Wales and Queensland. In today’s video, I’m gonna talk about Phil Anderson, whose book I recently just finished, which is called The Secret Life of Real Estate and Banking. Now for any of you that haven’t currently read this book, I think you’re doing your investment a massive disservice. I really think you should get out there and pick up a copy if you can. It can be a little bit challenging to find and a little bit more expensive than your average book. But if you think about the money that you can make based off this book over the next 50 years of your life, then there is an exceptional business case to read this book. So this was the second time I finished this book and I’ve been following Phil’s newsletter and his videos as well as his writings for quite a period of time now. So the reason I read it for a second time is because it’s such a heavy book. I’m not gonna lie.
I’m not gonna flash around it at all or walk my way around it, but I do feel like, for me, it was a heavy book. I have a pretty good financial literacy. I also have a pretty good understanding of the property market and economics. So this book for me was still heavy to read and that’s why I wanted to pick it up a second time, to make sure I really reaffirmed some of those learnings and some of those things that are meaningful for me. So this book is kind of like a history book. It looks at 250 years of booms and busts related to the property market and the global market in America. So what Phil was able to find over that 250 years worth of study was that there’s a fairly regular, within about a year or two of itself, for literally the last 250 years, a very regular cycle or pattern, which he coined it about an 18.6 year cycle. Effectively, what that cycle was 14 years of relatively stable upward growth with a little bit of a correction in the middle. Then four years of hard times.
So for those of you watching this video, I suppose the last hard time that we had was the global financial crisis in which property prices in many countries throughout the world corrected by anywhere between 10 and 50%. So it’s one of those things that if, I suppose, the value that I got out of the book is if you can see these things coming and understanding that they’re moving in waves and patterns. No two cycles are ever the same and obviously things change over time and it’s not a crystal ball for the future. But knowing that these relatively common things happen at different stages of the cycle so that you can get markers of where you’re at, means that you’ve got a lot of power in relation to timing. So I highly recommend everybody who hasn’t read this book to pick it up and take a look. So one of the big things that I got out of this book more than anything else was an underlying confidence that there are great times to buy and there are really bad times to buy.
If you get caught at the bad times, then that’s where you hear about people getting burnt in the property market, burnt in businesses, burnt in investing, burnt in the stock market. Then there are other times when the risk of investing is relatively low because you’re buying at the bottom. Obviously from the bottom, there’s generally an upside over a 7, 10, 15, 18 year period, so it was really, really important to me. I’m really excited about understanding this data going into the next cycle.
So one of the questions I would have if I was watching this video is where are we in the current cycle? Phil believes that it’s a 24 point clock that Phil has created in his book. It’s definitely worth having a look at that clock online as well. He thinks we’re at about eight to nine o’clock now, which is called the easy credit phase. That’s an interesting time in the cycle. It means that you’ve basically come off the bottom of the global financial crisis, had six or seven years of correcting prices. A couple years from now at the time of recording, this is 2017, Phil believes there’s gonna be a small correction for a year or so. Then onward and upward growth from there, peaking somewhere around about 2026, he believes, according to the book and the notes from the book and the notes that I get from his newsletter.
So whether you believe it or not, whether you believe that there’s a pattern to the property market or not, it’s a highly educational read. He literally breaks the book into a series of chapters, which are 18.6 years in length. He looks at the bottom of the market and how things turned around. As prices began to rise, what happened, then prices flattened. Then prices rose very quickly and then, obviously, the crash that has occurred within 18 or 19 or 20 years of every one of these land lead price collapses in America. But I think it’s kind of an interesting way to consider things. So one of the major things that came out of the book is this concept of economic rent. Phil’s got a big passion, I suppose, to educate people on this economic rent.
So what he means by economic rent is that the value and the productivity of people, of businesses in society eventually gets caught in the land. As long as the land is a freely tradable commodity that governments allow us to continue to speculate on and don’t tax us on. So what this means, and I don’t want to complicate this too much, is that let’s say that I’m currently earning $1000 per week and paying $300 per week in rent. Five years from now, I might be earning $100,000 per week. I might be paying $600 or $700 in rent and so I might have been able to buy properties when I was earning 50 grand at $300,000 for example. Then five years later, in a good market with some upward growth, I might have to pay $600,000 for that same product. So my income’s gone, but that income has gone back into land values and that is the economic rent that he’s talking about.
That’s why people invest in property in Europe or parts of Europe, in America and in Australia because they speculate that at some point in the future, property prices will be worth more than they are today. You physically can’t save money as quickly as you can make gains from property prices at the right times of the cycle. So he goes into a whole lot of stuff around how he can correct this. But without massive government intervention and a lot of people that currently own property losing money, he thinks it’s very unlikely to happen. So it’s really, really interesting.
So one of the major, major things that I learned about this book is that timing is absolutely everything and that if you can understand this timing and apply it to your investment strategy and learn to understand what the indicators in the global economy are telling you at a very, very high level, then it can directly benefit you as an investor. An example of this was myself, so in 2010, I just finished university. I just got my first graduate position with one of the biggest companies in the world in their Sydney office. For nothing except for pure luck, it was at the bottom of the last global financial crisis when property prices were beginning to level out and even starting to increase again in value, mainly in America but also in Australia. There was a short dip. So I, like a lot of other people, were being brought into the market as first time buyers to artificially stimulate the economy. That’s one of the major reasons Australia stayed out of the last major recession. But I bought a couple of properties at the bottom of the market in Sydney and, like everybody else who had skin in the game at that time, was lucky enough to ride the wave up. A lot of people think that there’s some very sophisticated investors because they were lucky like myself to just time the market or hold through that period of strong upward pressure and strong upward growth in the Sydney/Melbourne markets over that last seven year period, since 2010. But the reality was there was much bigger forces at play and if you look at your history, you can maybe gain an insight into the future.
So from a time perspective, you really want to be buying at the bottom if you can. But obviously the bottom only comes around once every 14 years, so you still need to be active during the solid upward phases of the growth and so there’s two phases, which is between the bottom and sort of six to seven years from the bottom. Then also a couple years after that, another very strong upward growth where money is money freely again. Most of the information and the education in the property industry and the finance industry is gone. What generally happens and one of the big things Phil mentioned in his book is that between one recession and the next recession or depression, a lot of that learning and education and people that were setting policy at that time saw it in the banks and the government institutions or the real estate people have been wiped out of the industry and wiped out of the finance companies.
So there’s another generation of people coming through that have never experienced it and, for some reason, we don’t look at history enough and learn from these events to know that in our history it’s 100% gonna repair itself again, as long as this system of collecting the economic rent continues. So it was really interesting to just think that, one, there are great times to invest in the market, and there are really average times. Two, more than anything else, it gave me sort of this underlying confidence that there’s this bigger pattern at play, which makes me sleep a little bit easier, which allows me to not get so caught up in the hype. What Phil says is that always during that first seven year period from the last global financial crisis recession or depression, there’s still a living memory of the bad times. So there’s lots of doom and gloom. There’s lots of people saying the world’s gonna fall on its head and then during the second half, some of those people are still around. But most people are just excited about making money and that things are going good again. That speculation increases.
That’s kind of the cycle, so I highly, highly recommend this book by Phil Anderson. He’s an incredible guy. Definitely worth watching his videos, reading his book. I love subscribing to his weekly newsletter. It’s seriously one of the things I look forward to every week now, his updates. He’s got a much bigger picture, a guy that’s traded chairs his entire life and put himself in a very strong position. His claim to fame is that he predicted the global financial crisis in, I think, 2005. Obviously it came through in 2007 and then in 2009, predicted the correction a couple of years before anyone else was calling it. So I think, again, being an investor is about having tools in your tool belt and knowledge in your mind. I think this is a great book that if you haven’t read it, it’s a must read. Get on it straight away.
Until next time, thank you very much.