Property Bubble debate became a hot topic recently in Malaysia.
This is exactly like the debate about inflation or deflation in the USA. It has been going on forever. It is a fruitless exercise to both parties actually. It is not important who is wrong or right actually, more important is how can anyone benefit from it.
Hence, I have set up two portfolios since Oct 2009, one favor inflationist camp and one favor deflationist. Based on the stock picked, actually the movements i.e. the difference between the two portfolion is not much. Certain months you will see one will beat the other. To-date, the inflationist camp is POSITIVE 2.7% and deflationist campt is NEGATIVE 1.3%. The bigges margin I observe so far is when DJIA drop to around 9800, the D camp has a positive of about 6% and I camp has a negative 5%.
However, non of the two camps ever get double digit gains or losses. From my observations, because of the wide range of portfolion (5 major types for each camp), the movement is not exactly consistent, therefore it offset each other, i.e. different stocks in the portfolio move at different timing, and sometime nullified each other. The other observation is, both D & I camps are too diversified, example in the D camp, you SHORT SHARES, LONG US DOLLAR, SHORT EMERGING MARKET, SHORT AGRI, LONG TREASURY.
In conclusion, like what happen in 2006, the property peak, in 2007 the shares in DJIA peak, in mid 2008, the commodities peak. In March 2009, if you short this 3 sector at the right timing you make a huge gain. But if you short them since 2005/6 at the same time, your gain is average. If you short them all at the wrong timing, you may have a loss.
MyView
In conclusion, from the 2 portfolios in the Deflationist camp the single stocks that make the most is TLT (i Barlays Treasury Bond) makes the most i.e. 11%.
In the Inflationist camp, the single stocks that make the most is GDX (Market Vector Gold) makes about 12%.
As a Group the results is marginal i.e. either gain or loss around 3-5%.
This brought us to a conclusion that in whether a Deflationary or Inflationary environment, one can still make a decent gain, but only if you choose the right ONE. However, certain month, I must say shorting the STOCKS also make a DOUBLE digit gains. That means, every one stocks has the opportunity to make a double digit gain.
Perhaps one can learn from this exercise is, whenever any ONE stocks reach the double digit gain, SELL and make the profits living out the balance to reach the DOUBLE digit. Hence, when you have 5 stocks that cover 5 sectors, each sector you will gain double digits but at different times. In the 12 months, you may have 3 sector or stocks that exceed 10%. In short in 12 months, you have achieve 3 out of 5 with >10%, living 2 more stocks (may be negative now).
