My take on the building sector ...7 Jul 2022 13:33
Media, Analysts and general talking heads never really understand the housing market. It's their job to attract listeners and eyeballs, with little regard as to the underlying strengths of the modern building industry. Just like Boris they are always searching for a headline, and tomorrow that headline is just fish and chip wrapping. They all know the Brits are obsessed with housing and the price of housing.
They still assume that the builders operate the way they did twenty years ago, when they would take on lots of debt to out bid each other on land. These days builders effectively operate on a build to order basis and all run solid balance sheets with little or no net debt. Gone are the days when builders would build out sites as fast as possible with little regard to quality and the normal building cycle, and then hope to sell them as they move on and repeat the process. When the normal cycle turned they were stuck with too much inventory, too much debt and had to discount units to clear out stock.
The normal build cycle is much less volatile and lumpy these days and given progressive changes in societal working arrangements people have more choice to choose where they live helping to create steady demand for new housing as they exercise their new found mobility. All this adds up to a more stable and predictable business model.
Builders are also making use of more technology to help better manage supply chains and accelerate productivity gains ensuring that margins are either increased, or at least maintained when external factors impact normal operations, as we are experiencing at the mo.
Of course, it is the market that sets the share price regardless of fair business value, and share price movements are exaggerated with the growth in algorithmic trading were professional traders (Hedge Funds, Investment Banks etc.) use their advantage to game the markets at the expense of weak holders and retail traders.
There is no point trying to beat the professionals at their own game, retail traders need to choose to buy when prices are depressed due to market volatility (like now), and expect to hold for a period of time until market sentiment improves. In market parlance, be a swing trader or positional trader, do not try to day trade in volatile markets. Day trading only works when markets are steady, either rising or falling; but predictable.
Buying at these prices will offer large gains at some point when sentiment swings, this might be a few weeks, months or maybe next year. Rest assured sentiment will change as it has in the past, and it will happen all at once. In the meantime console yourself with large dividend payments. Remember, patience is required to choose your entry point and don't be distracted by the taking heads. The rest will then take care of its self.
Of course, all IMHO.
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