Imagine for a second that the real estate market in the U.S. was as liquid as the stock market. That home prices for every single residence in the country traded on an exchange that could be accessed each business day. Imagine that selling your home was as simple as clicking "sell" and you would have a predetermined amount of time to move out. Actually, let's make it even easier than that. Let's say as part of this real estate liquidity program, within 24 hours of selling your home on the real estate exchange, movers automatically show up, pack your belongings and send you off.
Now let's assume the opposite were true for company stock. Imagine that stocks took months to sell. There was a tremendous amount of paperwork involved. The value of your stock wasn't quoted daily. If you wanted to sell your stock, you had to physically move a portion of the furniture, equipment or machinery at the company to another location. In other words, there was a tremendous amount of work and inconvenience involved.
How would this reshape the ability to produce profits in both of these assets? Investors I have met over the past 20 years have managed to produce tremendous profits in real estate, while very few have held onto their profits in the financial markets. Is this because the stock market is difficult? Is the stock market rigged, as some would have you believe? Has this been an adverse period for stocks? Is there something about real estate that makes it more steady and simple for the average investor?
Accessibility is the at the root of the answer to the question of why individuals fail at stock speculation at a much greater rate than real estate speculation. The fact that the stock market is quoted on a daily basis allows for emotions to get involved. Further, the ease with which you can move millions of dollars, allows for emotions to be acted upon in a feverish manner, avoiding deliberate, careful judgement while embracing fear and uncertainty.
For the average investor, real estate doesn't allow for emotions to get involved. In fact, it plays into the human tendency towards laziness given that selling a property involves both time and effort. And this is why investors, for the most part, are much more successful in buying and holding real estate than they are with stocks. In the real estate market, individuals are being rewarded for human traits that come naturally. In the stock market, individuals are punished for human traits that come naturally.
The individual investor in the equity markets is being manipulated on a daily basis. And I don't mean manipulated in the conspiracy sense that market makers are after you for every last dime in your wallet. I mean that individuals are not meant to digest price information on a daily basis while being able to accurately surmise their investment in an unemotional, detached manner. Eventually, the markets will become volatile to the point that they will force an emotional decision that will prove costly. The price movement we observe on a daily basis is of little consequence but for a small percentage of the time. A vast majority of what we observe is noise. Investors overwhelmingly tend to be influenced by the noise in a disproportionate manner due to the fact that most of our time spent is within the noise of inconsequential price movement.
The business of investing in any asset is a long-term venture. Time is your greatest ally as well as your greatest enemy. It is your ally in that if you remain loyal and patient, you can be rewarded to an extent far greater than could be imagined. It is your enemy in that the ability to remain patient in the face of flickering numbers and sometimes dramatic adjustments to your wealth on a weekly, monthly or yearly basis is unnatural for most.
Taking the approach of daily, weekly and even monthly price movement meaning very little could prove beneficial for most investors. Finding the right set of circumstances to invest in and sticking to your guns is key. Realize that the greatest wealth has always been created by those who found a handful of opportunities, concentrated their investments and rode those investments out for years on end, believing that their research superseded the nonsensical price movements and opinions we often experience in the markets.
