Mass Psychology in Real Estate> When to buy?
When a downturn in the real estate cycle does arrive, this sets off a whole new wave of emotions into motion – the psychology of pessimism. Now people are driven by risk avoidance, in order to minimize pain. This continues until people become excessively pessimistic, and real estate prices fall to bargain levels. Even at low prices, there are few takers. People come to see more risk than actually exists. This, in turns, sets the stage for another market cycle of expansion and prosperity – which catches most people in disbelief and by complete surprise. Sell Irrational Exuberance . . .
Buy Irrational Despair Correctly measuring risk relative to potential rewards is how good investment decisions are made. Mass psychology, however, is always at work in market cycles, producing irrational behavior that sabotages objective (and wise) decision-making. Great investors do not become great by engaging a follow-the-crowd mentality and giving in to the forces of mass psychology. They know that things are not always what they seem. Just as too much pessimism sets up the conditions for an upturn in the real estate cycle and a long rise in property values, over-optimism sets up the conditions for a downturn in the market and a fall in real estate prices. To combat these psychological pitfalls, and to avoid being one of the crowd, you must be able to adjust to the changing degrees of real risk … not perceived risk. To do this, an investor needs to adopt an economic strategy that shifts from an offensive to a defensive posture as market conditions warrant.
Buy Irrational Despair Correctly measuring risk relative to potential rewards is how good investment decisions are made. Mass psychology, however, is always at work in market cycles, producing irrational behavior that sabotages objective (and wise) decision-making. Great investors do not become great by engaging a follow-the-crowd mentality and giving in to the forces of mass psychology. They know that things are not always what they seem. Just as too much pessimism sets up the conditions for an upturn in the real estate cycle and a long rise in property values, over-optimism sets up the conditions for a downturn in the market and a fall in real estate prices. To combat these psychological pitfalls, and to avoid being one of the crowd, you must be able to adjust to the changing degrees of real risk … not perceived risk. To do this, an investor needs to adopt an economic strategy that shifts from an offensive to a defensive posture as market conditions warrant.
In the cyclical world of real estate, the biggest profits are made when you buy deeply discounted real estate when nobody wants it, and then sell richly priced real estate when everybody wants it. In other words, you need to train yourself to be an objective decision-maker that knows how to recognize real risks and identify true opportunities to both buy and sell.
Check out our foreclosure section. Great investors are: http://www.sellcapecoralflorida.com/Listing_Foreclosures.htm
Comments (1)
Run TO where everyone is running from, except when it is a bomb.
Jim Wineinger, over 14 years ago