By Gerald Tay (guest contributor)
We’ve covered Property Valuation utilising powerful ratios – CapRates, Cash-on-Cash, IRR, NPV, and MIRR in previous articles. Although these five ratios are seminal to measuring a property’s value, your attitude is no less critical.
There are a number of behaviours that almost guarantee losing in the real estate market. These behaviours, the antithesis of the way The Master Investor operates, include:
Investors try to buy and sell in the cycle, in the hope that they will be able to “time” their investments to maximise profits. A desire for quick profits blinds investors to the real hard work needed to win.
An example of bad investing is buying off-plan properties and trying to offload them before or after the T.O.P, in order to catch ‘profits’.
Fat, drunk and stupid is no way to go through life, son. – Animal House
People have an insatiable need for action. It might be the adrenaline rush they get from action – their “gambler’s high”. Investing in property is about patience and objective decision-making, not action addiction.
One does not invest because he is afraid to miss the ‘wave’. One invests when it makes sense to do so. Unfortunately, many investors cannot tell the difference – or know the “When”. They invest like lemmings who don’t have opinions of their own.
3. Lack of discipline
It takes an accumulation of knowledge and sharp focus to invest successfully. Many would rather listen to the advice of others than to take the time to learn for themselves.
People are lazy when it comes to acquiring the education needed for investing. Think about Bernard Madoff. Think of Profitable Plots (the local investment company which was recently busted by the CAD). People just want to believe.
4. Refusal to accept the truth
Investors do not want to believe that the only truth is cashflow when it comes to any real estate investment. As a result, they follow others’ exuberance and ‘lazy’ strategies like hoping for capital gains and rental guarantees, setting the stage for inevitable losses.
If you want a guarantee, go buy a toaster.
5. No objectivity
Losing Investors are unable to disengage emotionally from the market. They believe the market owes them a “living”.
6. The Complainers
They get depressed when they lose. Usually, they look everywhere else but at themselves, blaming others or events to avoid taking responsibility for their own actions. Instead of examining their own emotions to understand why they make the decisions they do, they chase after Holy Grails to hopefully find an ironclad “winning” strategy.
7. Inability to stay in the present
To be a successful investor, you can’t spend your time thinking about how you’re going to spend your profits. Investing because you have the money is not a wise state of mind.
8. Making false parallels
Just because the market behaved one way in 2010 does not mean that a similar pattern today or in the future will give the same result.
If you try to make market predictions, you’re guaranteed to be in a continual state of uncertainty whether you admit it or not. We react the same way to uncertainty as do other animals when faced with a threat, by shifting into the “fight-or-flight” mode.
Whales can only get harpooned when they come to the surface, and turtles can only move forward when they stick their necks out, but investors face risk no matter what they do.
By guest contributor Gerald Tay, who is the founder and coach at CREI Academy Group Pte Ltd, an organization dedicated to empowering retail property investors with smarter investing philosophy and strategies. He is a full-time investor with over 13 years of solid experience in building his wealth through Property Investment and is financially wealthy today.