Wednesday, March 11, 2015

Investing with Emotions

Warren Buffett often leans on one of his favourite quotes from ‘The Intelligent Investor’ which says that “investing is best when it is most businesslike.” So does this mean emotions are always bad when it comes to making investments in real estate?
Emotional investing can be calamitous. However, once you dig into it, emotions may have some positives when investing too.
Emotionally Charged Investment Decisions
Emotions tend to influence people to act less rationally. This would appear to be at odds with making sound, logical, investment decisions. We see it when home buyers keep on stretching beyond their means to bid on homes as they get caught up in the excitement and competition. We even see it when Canadian real estate investors fall in love with the concept marketing and branding of a pre-construction condo or luxury rental homes, and then vastly over pay, or can’t bring themselves to exit a failing investment when they should.
The reverse is what keeps many investors from making the better, more common sense investment decisions in less fancy property, which may actually be far more profitable.
Fear is one of the strongest emotions. It is also one of the most dangerous for an investor. Fear has been manufactured and managed many times to create substantial sell-offs at discounts when investors should have held. We’ve seen this in the stock market, oil, tech world, and real estate markets, and it looks as though that cycle may soon start again, if people fall for it.
When Emotional Investing Can Be Good
While some would argue that emotional investing can never be good, there are some factors which refute that.
For example, you could say emotional panicked sell-offs of an asset can create an amazing opportunity for those with the bullishness and courage to go against the market or act from a high level of wisdom. If no one invested emotionally then green and eco-friendly building never would have caught on.
Finding Balance
It is wise to be objective when choosing investments and predetermined timeline for selling and holding investments. However, this may follow an investor first emotionally by selecting a country, region or city to invest in, and the type of investment they are most interested in. It is then crucial to put personal bias aside and choose expert third party management that can execute and objectively manage real estate investments daily in order to maximize portfolio performance.

1 Comments:

Blogger Anton Jenovich said...

Richard I have been reading your articles for almost a year now and it helped me a lot getting a better prospective of the market opportunities, I am what you call a Jn commercial investor mostly working with smaller amounts up to $100,000 but the inspiration I get from your articles helped me over the last 6 month to see the market differently and focus on long term opportunities. I just scored big time with a commercial plaza in Mississauga, it seems like 2017 is going to be big for me, thank you Mr. Crenian, you made a difference!

Anton J, Toronto

February 7, 2017 at 10:38 AM

 

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