A bit like stories of the size of the one that got away, popular media stories about the returns that people have made on their investments can very often hide the reality behind a 'headline' return. The article about Cate Blanchett's amazing return on a property shows that not all that glitters is gold. In fact when you analyse the facts her return was a measly 0.37% per annum. Have a read and next time you hear of someone making an 'incredible' return look a bit closer at the figures!
In late 2016, it was widely reported that Blanchett sold her Sydney house for $19.8M. She bought the house for $10M in 2005. But in any case, it’s human nature to look at these numbers and think, “Wow! Cate Blanchett just pocketed $9.8M. Where else could you make that kind of return?” The answer is usually nowhere. There are three hugely important factors missing from the above calculation. How long did Blanchett own the house? How much money did she spend upgrading and maintaining the property? What were her transaction costs when buying and selling? She owned the house for 11 years, so while her total return is 98%, on an annualised basis that’s actually a return of 8.16%. Historically 8% is about the return an investor could expect from the stock market.