My son is a cricket tragic: he plays for his school and he plays representative cricket for our zone in Sydney. Ever present on our television, is either a local Big Bash match, or an IPL match, and we were glued to the Australia/SA test match over summer.
Sufficed to say, we watch a lot of cricket in my house.
It got me thinking: the different cricket formats are a bit like the different styles of property investing. The shorter Big Bash format is like flipping properties – exciting but highly volatile.
And buy-and-hold investing is like test match cricket.
Here are the six ways that buy and hold property investing is like test match cricket.
1. It’s a team sport
Like cricket, property investing is a team sport. If you are doing it right, you are distilling the experiences and expertise of a range of different people to get the best outcomes.
Cricket teams have opening batters, middle order batters, left and right handed bowlers, spinners and pace bowlers. Attacking and defensive plays take their turn, and all have value in the team.
Similarly, property investors need a buyer’s agent, a solicitor, and a property manager. And advanced investors may use valuers, architects, town planners and other trades.
Teams are a way to draw on different expertise and to get good results quickly.
And heck, it’s more fun this way as well.
2. Quality Always Prevails
In the limited overs Big Bash format, you can get lucky and you can get unlucky. While it is still a game of skill, someone may have a good knock, or take a lucky catch.
However, in longer-format test matches, there is no luck. The game is long, gruelling and deliberate, and the quality of both the players and the strategy will always prevail.
Property investing is the same: inferior areas, and inferior strategies can always do well over short periods of time if they get lucky. However, there is no luck in long term investing. Quality decision making, and a strong strategy will always prevail.
3. Patience Is Rewarded – But it’s a grind
Test match cricket is a game of patience and endurance. While the devil is in the detail (draws are possible), broadly speaking the team standing at the end of the 5 day period, has won. And the longer a team can stand there and absorb the attack, the more likely they are to prevail as winners.
Test match cricket is about staying in the game and “setting up an innings”:- figuring out the pitch and the conditions, and getting used to “seeing the ball”. The runs will come.
Property investing is the same. It’s hard, not easy. And it’s a long term grind.
Most wealthy property investors have had to hold on through periods of recession, of high interest rates of the 80’s, through property vacancy or through personal or vocational challenges. Some years will be easy, but most years will be difficult.
In property investing, the first few years are the hardest, while you are getting used to the conditions. The challenge is to be the guy still standing when the whistle blows at the end.
4. You won’t score runs every over – and that’s okay
Similar to point #5 about patience, you need to ride through the ups and downs. In test match cricket, the runs come in waves: during a particularly brutal pace attack, sometimes you just have to stand there and defend your wicket. When the spinners come in, often the run-rate goes up.
In property investing, the value of your property will not go up every year. The returns will come in bursts, and the trick is to have the patience to wait for those good years.
Sometimes cricket is just slow and boring. In investing, boring is beautiful.
5. The run rate grows late in the innings
While the beginning of the innings is usually about “setting up the innings”, the end of the innings is always a push for runs.
When my son plays 40 over-a-side matches, they say that the final score is usually double the runs at the 30th over.
Buy and hold investing is the same – the returns come later in the hold period.
Say you have owned a property for 10 years and the value has doubled. Every gain you get after this period is a gain off an asset base that has since doubled. It is growth on growth, or “compounding” as it is called in the investment world.
Property investing and test match cricket are different in this sense: cricket returns are linear, while property investing returns are exponential. However, in terms of the urgency of the returns, in both cases, the returns are usually back-ended.
5. You can’t lose if you don’t get out
In test match cricket, if the other team can’t bowl you out, you may not win, but you won’t lose.
Property investing is very similar. The biggest regret that most people have in property investing, is either selling too soon, or selling at all. As discussed above, returns compound the longer you hold the property, and by “getting out” you are missing out on the majority of your gains.
Now, in real estate, it is possible to hang on to a sub-optimal position and sometimes it is best to pivot to something better. However you will likely still make some returns in real estate, even if you buy a turkey. It’s never a bad strategy to stay at the crease either in cricket or in investing.
So there you have it – six reasons why test match cricket is like property investing. I apologise in advance if I have ruined your simple enjoyment of the beautiful game of cricket.