Specialisation over diversification

Tell any finance expert that you’re looking to go all-in on one stock, and you’re not likely to get a positive response.

Everyone tells you that you must diversify, diversify, diversify.

While that is sound advice if you’re looking at building a share portfolio, that might not be the best advice when purchasing real estate.

These days we see a lot of people who are out there chasing quick dollars. We see investors who are buying properties in regional WA or Adelaide and hoping that these markets are going to keep on rising.

Again, this can work for them, but for me, I like to be a specialist.

When I buy property, I like to stick to the areas where I have the most knowledge and skill. They also just happen to be the ones that have the best long-term record of growth.

For me, that is in blue-chip locations like the Eastern suburbs of Sydney.

In these markets, I have spent a lot of time honing my skills and building up my own portfolio. So when I see a property come along, I know exactly what it should be worth, and I can make a fair estimate of how that asset will perform over the next 10 years.

I can quickly spot something that’s undervalued and move fast to secure it.

What I am doing here is not diversifying – I’m specialising.

By being a specialist, I can uncover properties that others don’t see. And while I am heavily weighted towards Sydney, I also understand what that risk profile looks like.

I have allowed for the inevitable ups and downs that come along as interest rates rise and fall, and sentiment in the market swings.

But by being a specialist and investing in my knowledge and understanding of that market, I have built myself an edge.

We all know that diversification is important in certain areas of our lives.

As Warren Buffett says, “Diversification is protection against ignorance,” 

But he also suggests that “It makes little sense if you know what you are doing.”

In property, you will often get the best results when you are an area expert. 

If you know more about your market than the sales agents who are selling the properties, you will have an edge. 

That’s when you can find the best opportunities and act on them quickly.

But you also don’t need to be perfect. Simply knowing what a good asset is in an area that has seen high growth over a very long period of time, means that you have the wind at your back.

So instead of trying to find the latest hotspot in some town in outback WA, stick to the fundamentals. First, find a blue chip market. Then learn the ins and outs of it better than anyone else. 

That way you can not only find great opportunities but also have the comfort of knowing you have the overall market winds at your back.

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