THESE days many people are wondering whether real _ estate or the stock market is the best place to put their money. That’s a good question and if 1 knew the definitive answer to it I would be not only rich, but famous. However while no one can predict the future with certainty “we can make some informed assessments and judgements about it. It is pretty clear that real estate will always be a good long term investment in the Vancouver area i, just because it is sach a desirabic © place to live. However, as we dis- : cussed in fast week’s column, it looks like higher interest rates are going to keep the lid on real estate prices for the next year or so. Once we get back to lower interest rates and higher economic growth in B.C., we will see a return to at least modest yearly increases in housing prices. Therefore, now is not a bad time or two. : 1 am not an expert in the stock *. market, but 1 do follow it pretty closely and | do-understand the basic principles of demand and supply. i have also learned over the years that many financial “experts” don’t really uaderstand some of *. these fundamental economic prin- © ciples. So my opinion is probably as good (or as bad) as anyone else’s. ; Right now, opinion on the out- look for the stock market is divid- ed into two opposing camps. On the one hand the bears believe that a crash is just around the corner because af the technology stocks are way out of fine with traditional measures of valuation. On the other, the bulls think that the good times will continue because these highly valued stocks repre- sent 2 “new economy.” I tend to sicte with the bulls on this one, but for somewhat different reasons. In the mid-1990s a lot of the experts missed, or at least underes- timated, the surge in the stock market. Thar surge was driven to a large exteat by demographics. I: was at that time that baby boomers were coming to the age where they had significant amounts of money to invest and thev plunked most of it into the stock market. You can see evidence ef this increased demand in trading volumes which more than deubled between 1996 and 1995. By the late ‘90s vol- umes had almost doubled again. When the demand for some- thing increases, and supply is more or less fixed, then the price goes up. It’s really that simple and it doesn’t matter 2 tinker’s damn whether or not price/earnings ratios or any other measures of value get out of line, I think the current stock market boom is being driven in part by the same factors but also by a new phenonienon: Internet on-line trading. This thing is growing so fast that it is difficult to get any hard numbers on it, but yust look- ing on the Internet 1 counted over 80 firms offering on-line trading in the U.S. PC World magazine recently reported that in the US. there are currently six million on- line investors. Canada has been a bit slower off the mark and we only have a handful of companies offering on- line investing. However, in the last year, demand for this service has really taken off and the on-line trading firms are swamped. One of them told me that they are getting several thousand account applica- tions every day. On-line investing wiil increase the demand for stocks in two ways. First of all commissions are drasti- cally reduced — by as much as 88% fiom full service commissions. If the transaction costs of buying a home were reduced by this amount and all passed on to the buyer, the demand for housing would certain- ly increase. $o it is with equities — this significant reduction in costs will result in a permanent increase in demand. Secondly, the vast information resources that are available to the investor on the Internet, plus the ease of on-line trading, make this a very appealing, and potentially profitable, activity. This is also going to have positive a impact on the demand for stocks. Friday, February 18, 2000 —- North Shore News ~ NV-3 FEBRUARY So demographics, lower fees and ease of trading, combined with a healthy economy, are all increas- ing the demand for equities and forcing prices up. This should con- tinue for sometime antil longer term adjustment factors come into play, This is not to say that there aren’t some stocks and even sectors that are dangerously overvalued. For example I would be wary of some of the stocks on the NAS- DAQ exchange which have been pushed up to highly inflated val- ues. But 1 don’t think there is too much of this on the Canadian exchanges. There may be miner corrections along the way but there won’t be anv crashes oc seri- ous setbacks and I would expect values on both the TSE and the CDNX exchanges to be substan- tially higher a year from aow. Over the longer term, the sup- ply of equities should adjust to the increased demand and higher prices and we can expect prices to Aerial audience come down to be more in line with traditional valuation criteria. So in a sense the valuation bears are right — it is just that their tim- ing is wrong. But of iene with investing, timing is everything. Sol think that Canadian stocks could be a good investment over the next year, although it should be emphasized that the stock mar- ket is not the place for the risk adverse or the faint of heart. Real estate investments will probably result in very modest returns over the next couple of years, but for the owner occupier, a home is still, in many ways, the ideaj investment. The home buyer gets a secure investracat with growth potential that is exempt froin capital gains tax. On top of this he gets the pride and satisiac- tion of owning in the home he lives in. : — Trent Appelbe is a real estate agent and an economist with Re/Max Crest Realty. He can be reached at 988-4797 or by e-mail at . NEWS phote Paul McGrath SNOWBOARDERS and skiers alike have been enjoying sunshine, snow and the view from atop North Van's Grouse Mountain.