"Be ye of reasonable means, with intent to secure thy future, thou canst afford nought to be in stocks." There, I quote myself (Shakespearean merely for effect)! Truly, the merits of equity investing are beyond doubt. Even more certain is that they are ill-understood. "The real key to making money in stocks is not to get scared out of them" is how Peter Lynch, one of the gurus of the craft, put it admirably.
So why this reticence that, in the face of voluminous data on the benefits of stock-picking, makes even the well-heeled go weak in the knees? Market evidence shows that the issue is not opportunity. Nor is it barriers to entry, lack of visibility, or absence of ambition. And very rarely, contrary to popular belief, is it ability. For today, let us dwell on that last-named, for it is the one I find most difficult to fathom.
In context, ability could be thought of in two ways: the capacity to invest; and skill therein. Not that I choose my company specially, but enough investible surpluses (after emergency cash or fixed income commitments) exist around me. However, they find their way into real estate, almost without exception. I don't discount residential or commercial realty being part of a well-designed financial plan (though my personal experience of returns isn't much to write home about). However, I do take issue with overexposure to this asset class, notably when at the expense of equity.
Nothing brings this better to light (to the mythical point on ability) than the dramatically different approaches folks follow while investing in stocks versus real estate. Most realty shopping, perhaps on account of packet size, is backed by effort, discipline and rules. However, the same individuals behave in a diametrically opposite manner when picking stocks. For instance:
So why this reticence that, in the face of voluminous data on the benefits of stock-picking, makes even the well-heeled go weak in the knees? Market evidence shows that the issue is not opportunity. Nor is it barriers to entry, lack of visibility, or absence of ambition. And very rarely, contrary to popular belief, is it ability. For today, let us dwell on that last-named, for it is the one I find most difficult to fathom.
In context, ability could be thought of in two ways: the capacity to invest; and skill therein. Not that I choose my company specially, but enough investible surpluses (after emergency cash or fixed income commitments) exist around me. However, they find their way into real estate, almost without exception. I don't discount residential or commercial realty being part of a well-designed financial plan (though my personal experience of returns isn't much to write home about). However, I do take issue with overexposure to this asset class, notably when at the expense of equity.
Nothing brings this better to light (to the mythical point on ability) than the dramatically different approaches folks follow while investing in stocks versus real estate. Most realty shopping, perhaps on account of packet size, is backed by effort, discipline and rules. However, the same individuals behave in a diametrically opposite manner when picking stocks. For instance:
- Look before you leap?: You buy an apartment in DLF after arduous research, talking to the world and their mother before you commit. Stocks you buy because you got a hot tip with a shot of Jack Daniels last night!
- Shylock or Great Gatsby?: You bargain down to the last thousand, even hundred, in buying property: negotiating terms, comparing freebies and so on. Stocks you buy in a bull market, when the local barber is dispensing investment advice, with nary a care about valuation!
- Till Debt do us part?: You negotiate mortgage rates down to the last bp, manage monthly EMIs with an appropriate down payment, and pre-pay whenever you can through the tenure — all to keep debt under control. Stocks you rush headlong into F&O or complex margin positions with little regard for complexity or leverage?
- Ain't it a team sport, baby?: You are happy to employ and pay for real estate expertise with agents, lawyers, architects, interior designers etc — anything to ensure asset acquisition and management are optimal. Stocks you trash financial planners and avoid research advice, preferring hunches and going solo?
- Time in market vs timing the market?: You invest in property for the long term, commitments that typically last years; and exit only when goals are met, or as a last resort (if faced with hardship). Stocks you look for upsides in days or weeks, often selling for small profits in a bull market, or a huge loss when bears rule.
Posts
