Don't Follow the "Dumb" Money

Edmonton Commercial Real Estate - Dumb Money or Smart Money?

I really enjoy reading Investor's Digest magazine, a periodical focusing on the stock market and investing in stocks, bonds, mutual funds, etc.

The current edition has a front page article entitled "Invest wisely: don't follow the "dumb" money". Now I don't know about you, but a headline like that sure caught my attention. I think the headline is pretty self-explanatory so I will get straight to the point after this quote from the article. Speaking of the frenzy around income trusts in 2007 and Finance Minister Flaherty's tax amendment blocking the loophole, he says "Yet even before Mr. Flaherty's move, I knew the sector was ready for a hit. I'd been tracking the inflow of capital by retail investors, the so-called "dumb money" (if you're a retail investor, how do you feel now?) into new issues, as well as into mutual funds holding income trusts. So when I saw money pile into income trusts, I knew the good times would soon be over. As a result, I cashed out, thereby saving my investors a lot of grief."

I love the next line; "Still is it really fair to call investors who follow the crowd dumb? In a word, yes. Not only are they usually the last to get into a particular sector, they're usually the last to get out as well."

Well.

Remember he said that, not me. But my next question is the million dollar question (literally). Is investing in Edmonton now "following the dumb money". Well I think that I'd be pretty dumb to say yes to that question in public, but honestly I don't think so. I think investing in Edmonton is still pretty smart. But....I think the small investor does need to be careful. Let's talk about this. Firstly,

Why is investing in Edmonton Commercial Real Estate still Smart Money?

We can analyze economics to death and produce flashy full colour charts, spreadsheets and prognostications, but really, one thing tells me more than all the analyses in the world...where is the big money going? The big money is more likely to be the smart money than us little guys' miniscule forays into the world of commercial real estate. I'm talking players who invest in the hundreds of millions of dollars. And the good news is that a lot of that money is flowing into Edmonton. If Edmonton is good enough for the big boys, it's good enough for me.

So I'm safe to plunge all my money into Edmonton?

Well I wouldn't go that far. There are a small but growing number of institutional investors becoming wary of investing in Edmonton and that is understandable. Valuations are growing, rents are increasing, and new projects are underway every day. So small investors need to be wary in this kind of market. A hot market brings a lot of speculators and a lot of unsavoury individuals. Yes, things are going up and up. And what goes up....

Well you'll just have to wait (not long) for my next blog post to find out. I will discuss the boring details behind what my thoughts are for Edmonton real estate in the coming few years.