• Gerald Tay

Capital Gains – Foolish Desires

Updated: Feb 13


Foolish desires: Better than buy now than lose out

We see many property buyers with foolish desires recently.


It’s interesting to see how dreamers of ‘The Next Singapore Property Millionaire’, behave like the hilarious first round participants of ‘The Next Singapore Idol’ contest who are thick-skinned enough to believe they have ‘it’.


My late multimillionaire grandfather said, “The Rich makes money with control, while dreamers always make money on hope… and hope is their only saviour.”


Dreamers invest on capital gains and a hope. They don’t have intelligence. You don’t need intelligence to make money in a booming market, because just anyone can make money when the market is booming.


But when the crunch time really comes, many of these dreamers lose control, confused and panic like lab rats. They don’t have the necessary skills and the pre-controls to prevent a financial disaster.


All they have is…


Hope.


They have what I called ‘herd intelligence’. They see the immediate situation just like everyone else.  They copy and paste. They think narrowly and call it being focused. They don’t see the surround. They don’t see the consequences.


That’s how dreamers often get ripped into pieces by the unforgiving market.


  …… For ‘herd intelligence’.


This dreamer property buyer makes far too many assumptions which he/she cannot control:


Believes prices will always go up


Believe in permanent job security to service mortgage payments when a downturn comes


Believes the market if a correction do happens, will only fall marginally


Believe interest rates will stay low in future


Believes can rent out property easily when T.O.P


Believes can find buyers easily when T.O.P


Believes property is a sure one-way-bet to making money or better returns than bank fixed deposits or any other investments


Believes capital gains is the way to play the game


Believes to be savvy investor even with very little competence, knowledge and enough experience


A dreamer is an amateur who invested with no investment control. His only control was if he can well-afford to lose $XXXK.


His only control was a continued booming market.


If you’re investing on assumptions and so-called beliefs, you're not an investor. You're just like "mom & pop" buyers.


Capital Gain is like inherited wealth: attained without discipline.


Most kind of power requires a substantial sacrifice by whoever wants the power.


There is an apprenticeship, a discipline lasting many years. Whatever kind of power you want. CEO of the company. Black belt in karate. Spiritual guru. A property millionaire.


Whatever it is you seek, you have to put in the time, the practice, the effort. You must give up a lot to get it. It has to be very important to you.


And once you attained it, it is your power. It can’t be given away. It resides in you. It is literally the result of your discipline.


Now, what is interesting about this process is that, by the time someone has acquired the ability to kill with his bare hands, he has also matured to the point where he won’t use it wisely.


So that kind of power has a built in control. The discipline of getting the power changes so that you won’t abuse it.


Capital Gain is like inherited wealth: attained without discipline. You copy what others have done, and you take the next step.


You can do it very young. You can make progress very fast. There is no discipline lasting many decades. There is no mastery: risks are ignored. There is no humility before nature.


There is only a get-rich-quick, make a name for yourself fast philosophy. No one has any standards. They are all trying to do the same thing: to do something big, and do it fast.


A karate master does not kill people with his bare hands. He does not lose his temper and kill his wife. The person who kills is the person who has no discipline, no restraint, and who has purchased his power in the form of a Saturday night special.


And that’s the power that capital gains foster and permits. And that’s why you think that to build wealth like this is simple. But it is not, and something will go wrong eventually.


Ignorance has always said that it may not know everything now, but it will know eventually.


It’s an idle boast. As foolish and as misguided, as the child who jumps off a building because he believes he can fly.



Capital Gains – It’s always a Zero Sum Game


I questioned the conventional wisdom of constantly buying and selling properties (or any other assets for the matter) for capital gains. If the taxman does not get you, the market will eventually.


You buy low, then sell high. Then what do you do with your profits at that point of time? Buy higher, sell lower? It’s always a zero-sum game.


The dreamers always hope to buy and sell to make that quick buck. Go to the casino instead.


Like a casino, an amateur gambler makes money on the first couple of visits, only to lose even more eventually when his luck runs out. Just like a casino, we can never beat the market.


This is what happens to most amateur investors who happen by chance to make money in a boom time, only to lose it all in a downturn.


Real investors make the most money during the downturn of the market, and treat gains from a booming market as a bonus.


You want to be an investor, not a trader.


You want to invest on income, not capital gains.


Capital gains should be treated only as a bonus, and should never be a key priority in your property investment decision.



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