This is a question that has confounded even the smartest investors across the globe, but the simplicity of the answer may be too surprising for many. For decades, the stocks have been considered to be ‘high-risk’ assets and their volatility has led to significant losses to investors around the world. On the contrary, the real estate sector has been much cherished from an unknown period of time and even today, it continues to attract huge fund flows at expensive levels. This scenario begs a question: is the real estate really that safe a haven?
The answer to the highly debated question lies in psychology. Yes, you read it right. Psychology is a major factor which is favorably inclined towards the real estate sector. It is common practice to buy stocks on the basis of trading calls given by analysts on television, recommendations from a friend and mostly, just to join the herd. Some market participants even trade stocks on news, based on their half-knowledge about its potential impact, lose money and blame the market in the end, when they have gambled all along. A major chunk of investors does not want to give proper time to research and study about the stocks, let alone give the investment it’s time to come to fruition. The psychology that “I can make a quick buck from this trade”, has often cost a lot more than one was ever prepared for.
But the same psychology changes drastically when it comes to real estate. The mind has been programmed to think that a property will definitely double the investment in 5-10 years. It obviously will appreciate since the buyer considers this investing as an asset, gives it proper time and amply researches about the basic amenities, transport, infrastructure, future projects, government policies and etc. While buying real estate is considered to be a matter of months, buying stocks is chosen to be a matter of minutes.
Another key aspect is the continuous monitoring of the prices which affects the psychology to a great extent. Stocks are the best investments over the long term and even the greatest financial crises have been unable to contain the Dow Jones, which is still trading at record levels. Even the precious property might not appear as ‘safe’ if its prices were observed on a minute, hourly, daily or even a monthly basis.
Stocks should definitely not be bought with a gambling/speculative perspective, but rather by faith in the businesses to overcome even the worst of times and reward its investors.
By: Nikhil Gupta, Financial markets Researcher/Analyst