Why shares beat property every time

By Tom Bulford Aug 25, 2010

Tom Bulford

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We heard Betsy as soon as she stepped onto the boat. She was a big, American lady - a voluble character that had everyone in stitches within minutes of leaving the port. We liked her well enough to invite her for dinner with us one evening last week. But we soon knew all about it.

It turns out that Betsy is in a bit of a mess. And over dinner the next night, we heard all about it. Two hours of unending confessional. And when we parted company after the meal, we returned home with a very valuable lesson learned.

The holiday dinner from Hell

Betsy seemed to have it all. She had a well-paid job, and travelled the world in style. And the wealth of her personal experience made for interesting company.

Still we got a fright when she arrived for dinner, squeezed into a frilly frock more suitable for a high school dance. We found a table overlooking the bay and Betsy proceeded to give a performance the like of which I have never experienced before or since.

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For two hours this American dame spoke volubly and without ceasing about a single subject - herself. We heard all about her home in New York, about her responsibility for ATT's sub-sea communication cables and about the inadequacies of her husband Ron.

We heard about the Maldives - 'you'd love the beaches!'; about Tibet - 'there are just no proper toilets - I had to pee into a jar and empty it out of the window!'; and about Malaysia - 'I went white-water rafting! Let me show you some pictures'.

And with this she produced from her bag a tablet otherwise known as an iPod Touch on which we saw displayed images of pristine Maldivian beaches and of muddy Malaysian rivers, but fortunately none of Tibetan sanitary arrangements.

Sensing that we were more intrigued by this impressive item of modern technology than by the pictures themselves Betsy then gave us the benefit of a full exposition of the iPod Touch's various features. These included up to the minute stock prices and news from the New York Times, a currency converter and a warning of any incipient earthquakes, the latter essential for the better preservation of AT & T's precious sub-sea cables.

Yes aside from the deficiencies of Ron, Betsy seemed to have it all. But there was a cloud on her horizon.

How Betsy fell into an awful trap

For Betsy owns a time-share on the Caribbean island of St. Thomas. Five years ago she was talked into paying $35,000 for a week's use of a holiday apartment, a price that to me sounded excessive given that the other 51 weeks were also presumably sold for $35,000 or thereabouts.

Anyway when Betsy visited St. Thomas this Spring she found that the previous occupants had walked off with all the light bulbs, that the oven had broken and not been repaired and that the whole property was looking decidedly the worse for wear. When she took matters up with the managers she found them off-hand and inefficient. And after five years of sitting on the same Caribbean beach she had had enough of it. She had begun to resent paying the annual service charge, and wanted out.

'But are there any buyers?' I asked, finally managing to make the conversation a two-way affair.

'That's the problem' Betsy replied, 'and if there are I don't suppose I would get anything like my $35,000 back.'

'You would have done better,' I suggested, looking at her iPod Touch, 'to have invested that money in Apple.'

For sure she would. While Betsy has watched her time share investment turn sour, shares in Apple have gone up 440% and she certainly would not have any trouble selling them.

All the world over people like Betsy fall into the bricks and mortar trap. For my money it is shares every time.

• This article was first published in Tom Bulford's twice-weekly small-cap investment email The Penny Sleuth.

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Published in How to invest | More articles by Tom Bulford

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  • 1. Pete

    (26 August 2010, 05:03PM)  Complain about this comment

    Good example. I invest in shares that I intend to hold for at least two decades - maintenance costs zero. Own a property for two decades - I daren't think of the maintenance costs, but they'll be considerably more than zero.

  • 2. Jon

    (27 August 2010, 08:03AM)  Complain about this comment

    ...with perfect hindsight Apple was indeed a good alternative. Five years ago, Lehmans et al would also have seemed a good alternative, or indeed the S&P index.

    Yes, shares are a good alternative - but timing is crucial - else comparisons between something troughing whilst it's oppo is peaking (would you seriously recommend Apple shares at their current price ?!) seems a touch inappropriate.

  • 3. Douglas Parker

    (27 August 2010, 04:40PM)  Complain about this comment

    Not quite the article I had hoped for. I have recently posted an article on my website entitled 'why property still makes such an excellent investment'.

    We all know that property costs money to maintain, and that all investments involve risk; but what happens when your company goes bust? The shares are worthless. At least property represents a tangible investment.

    www.thepropertyspeculator.co.uk

  • 4. Elvis Presley

    (04 September 2010, 09:45AM)  Complain about this comment

    There is something very contradictory about the Moneyweek Team. There is the current theme that stock markets around the world are about to crash, yet the mag is full of stock recommendations. For the average Brit 'proberdee' is still a one-way bet - they look at what's happened to the stock market (eg BP) over the last few years and most wouldn't dream of going near it. They don't know what a bond is, let alone a gilt. Property is the default investment for Brits, come what may. If you mention falling prices they just reply: but in the long term......this, as any stock market investor knows is the first admission of a failed investment, yet to the Brit property investor it's an opportunity to buy more.

  • 5. Elvis Presley

    (04 September 2010, 09:46AM)  Complain about this comment

    continued....

    Until there is a property crash comparable to the disaster that has beset some stocks (some stocks in my portfolio have dropped over 99% - which makes property look safe), where every property investment goes belly up (recorded for all to see on TV), they will continue to buy. The stock market also needs cleaning up - the amount of insider dealing taking place is INCREDIBLE.

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