Why Most People Make Money in Real Estate but Lose in Stock Market?
Two of my favourite asset classes are Stocks (including Options) and Real Estate.
However, when you ask people about their experience with Stocks and Real Estate. You will receive very different response.
Most people (from my circle of network) would have made decent profits from their real estate investment.
It is very common to hear about more than 100% profits in real estate investment after 8-10 years.
Yet, most stock investors do not profit from the stock market. (This is anecdotal from my experience, you can try asking around your own friends and family.)
The question is WHY?
How is it possible that the same people can be so successful in one asset class and so unsuccessful in another?
Based on my conversations with many investors and homeowners, it seems to boils down to ONE key reason.
The AVAILABILITY of PRICE.
In the stock market, the brokerages update you with the LATEST prices of the stocks you invested in (for FREE). While the latest prices of real estate is not easily found and is often only available at a FEE!
This SMALL but IMPORTANT distinction made investors behave very differently.
Stock Market vs Real Estate Market
In the stock market, if the share prices go up, investors tend to look at it as a positive sign and want to jump in. While falling share prices will trigger a “flight” response from investors, fearing something is wrong with the company.
Therefore, stock investors tend to BUY HIGH SELL LOW – The cardinal sin of investing.
However, the latest prices of real estate is not easily available. In fact, there is no central body that will report the prices of your house on a daily basis like the stock exchange.
The lack of the real time prices in the real estate market ACTUALLY helps real estate investors to make better decisions.
They stick with their original reason of buying the property and not be swayed by DAILY prices.
Real estate investors would take time to find a location and good property. Once they invest in one, they will usually hold on to it for a longer period of time (3-5years) as compared to stock markets, which can be days.
Choose a good location with good facing, and just hang tight
A good real estate investor once told me.
Now imagine if a real estate agent comes to your house and report your property price in real time? I can only imagine the behaviour of the real estate investors in this case, and their investment returns.
So what should you do?
One effective habit that I have developed over the years is NOT TO LOOK AT MY STOCKS daily.
Frankly, it is easier said than done. Even as a fulltime investor, I struggle to not look at my investment portfolio daily.
I will employ little tricks to help myself.
Example:
- Putting my portfolio app on the last page of my phone
- Tracking my portfolio on a manual Excel sheet instead of a LIVE updated software
- Putting my phone away when I know the market has dropped
Does it always work?
Of course not! But it helps. And as I practice more and more self-awareness session, I am getting better at it.
But for those of you who are new to the market, remember that your emotions can go against your portfolio performance. So always be very wary of it.
I know of a friend who will ask his wife to change the brokerage login password to prevent him from doing impulsive trades.
Now, that’s a bit extreme but at least he is doing something. What about you?
