Yangshuo, Guangxi — riding out among the limestone peaks.

We just got back from a family trip through the south-west of China, and the place none of us can stop talking about is a little village called Yangshuo, in Guangxi. We arrived just after a cyclone had been through, so half of what we might have planned was closed or washed out, and we ended up hiring an electric bike and riding out among the limestone peaks with no agenda and no expectations at all. It turned into the best day of the trip. We found a tiny café serving what we're now convinced is the best sea salt chiffon cake going, and my kids reckon the pasta was the best they've ever had. Yes. Pasta. In a village in Guangxi.

What stayed with me, though, was the people who live there. Families in that countryside grow their own vegetables and rice and farm fish in their own ponds, and they're not measuring their lives against anyone else's. What they expect from life sits right on top of what's in their power to change, and they seemed quietly content in a way that's rare back home. I'm not romanticising life on the land, and I'm not telling you to expect nothing. The point is that disappointment lives in the gap between what you expect and what you can actually change. Our best day in China happened because we managed our expectation.

Unrealistic expectations in investing lead people to irrational decisions sometimes ignoring the consequences. Right now it is playing out in markets on an enormous scale.

South Korea is having a genuine boom. Its two big chipmakers now make up more than half the entire Korean sharemarket, and one of them paid staff bonuses worth about thirty times a month's salary this year.

SKHynixSamsun Comparative Performance

The boom is real, but the expectations stacked on top of it are something else. Day traders over there are borrowing money to trade shares that can swing ten per cent between breakfast and dinner, mostly through something called a leveraged fund. In plain English, that's a fund that borrows so every move in a share gets doubled or tripled, in both directions, and because the borrowing resets each day, a bumpy ride back to the same share price leaves the fund lower than where it started. Korea's own regulator says it regrets ever approving them, and reckons about 92% of the people holding them are ordinary investors chasing 40, 50 and even 100 % returns overnight.

It's not just Korea either. The SpaceX sharemarket listing, and the queue of giant listings behind it, could raise about four times what the whole American market raised in new listings last year, and money like that only turns up when expectations are running hot.

SpacexSharePrice

So what does any of this have to do with your portfolio here in Australia? A fair bit, because through your global shares you already own a piece of America and a piece of the AI story, and it's been one of the better performers. But we own it spread across dozens of companies, not borrowed against any one of them, and sized so that if some of the froth comes out it stings rather than wounds. This isn't me telling you to sell. The trader in Seoul owns much the same story you do, he's just trying to squeeze a decade of returns out of a single quarter.

Let’s say if you want something valuable, like your dream car or your dream house. Would you work hard for it or would you steal it? Most people would pick the first. But put an investment product in front of people promising outsized rewards without the market's waiting, and plenty of us will quietly try to steal it, own the outcome without paying the price. That price has never been a secret, it's time, patience and the pain of sitting through stretches where you look wrong. It’s not something you should try to avoid. It’s the price you should expect to pay. Leverage is the promise you can skip the bill. You can't, it just turns up later with interest added when it’s overdue.

So when fund managers cross my desk with leveraged propositions, and lately a few clients have asked me about them directly, the answer is no.

That's what expectations look like when they run away from reality. The flip side is what realistic ones look like for the year ahead at home, and on three fronts mine sit a fair way from the crowd's.

First, inflation isn't finished. Everyone's celebrating the headline number drifting down, but the Reserve Bank watches the underlying measure, the one that strips out noisy one-off swings to show the real trend, and ours has been quietly rising while the rest of the world's falls. I think they raise rates again, possibly as soon as next month.

Second, the property doom is overdone. Prices are falling and the changes to negative gearing and the capital gains discount will bite, but I don't see a crash, because underneath it all we're short somewhere between two and three hundred thousand homes. My best guess, leaning on Shane Oliver's numbers at AMP, is another six per cent or so off nationally, a bottom around autumn next year, then recovery as rates turn. The uncomfortable twist is that reforms built to help first home buyers may deepen the shortage, since the investors who fund new rental supply are stepping back. Cheaper to buy for a while, harder to rent for years.

Third, the Perth, Brisbane and Adelaide run is closer to its end than its beginning. They've been the darlings while Sydney and Melbourne cooled, but the big capitals and the smaller ones have traded leadership for decades, and if you compare prices with the rents those homes actually earn, Melbourne now looks like some of the better value in the country. Chasing last year's winner is the same expectations trap, just in bricks.