The wisdom of the crowd or the wisdom of the confident?

In 1906 the English statistician, Francis Galton, asked the punters at a fair to guess the weight of an ox. The average of the estimates was within 1% of the actual weight. Ever since the wisdom of the crowd has gained weight, so to speak.

Yet the wisdom of the crowd concept has proved to be less straightforward or as reliable as we might have hoped and there is a lesson in this for property. It seems that when the crowd is largely relying on the same data and media reports for input the quality of its wisdom diminishes markedly. In certain circumstances it can be dangerous.

In the first two months of this year a series of global indices and developments, including those at home, highlight the problem of the crowd’s wisdom. The crowd is trapped on a roller-coaster not knowing what will happen next: Australia remains attractive to global investors, yet China’s growth is slowing; credit has never been cheaper, but regulators are making it harder to borrow; negative gearing, capital gains and new forms of infrastructure finance are part of the growth narrative, but are our politicians really prepared to act on any of it? It is not a time for the faint hearted.

However, there is a different, better, way to think about collective wisdom amid such turmoil. Recent research shows we do better to think about the wisdom of the confident. Confident people are typically free-thinkers, less influenced by generic media information and more likely to arrive at their own perspective based on their own assumptions, insights and track-record. So what are confident thinkers thinking and how are they behaving? In terms of property there are a few beacons worth marking on your chart. For starters, Harry Triguboff seems to be in cruise mode. He seems to be in no rush to put cranes up for the time being. The heat is leaving high-rise residential, and while house & land packages will tick along well enough, they will do so without significant price increases.

By contrast, Greg Goodman seems pretty busy these days. Industrial property is running pretty hot and looks set to continue for a while. Yields are attractive and the barrier to entry is much lower than for commercial offices so the sector is attracting many. Just be careful of the growing crowd jostling on the way in and do the math. If it looks too good to be true it probably is. Similarly, at an international level Blackstone are on an acquisition path, while more locally Darren Steinberg at Dexus is also making big acquisition commitments for commercial and industrial sites.

There is little question of confidence as far as these two impressive performers are concerned and they shine a strong light on where future opportunities will be found. In property there is always a lot of noise, the laughter and screams from the roller-coaster. But most of it is really static. By distinguishing the ‘signal from the noise’ you can hear better, understand your own position more clearly, and be better prepared for the opportunities that are emerging. So be sure to follow the confident, not just the crowd.