Let’s read Martin Pelletier’s thoughts on how Real Estate and Investing/Stock Market have similarities. He had based it on his experience having put his house for sale. Read it below:
Having recently listed my home for sale in Calgary, I was surprised to discover quite a few similarities between the residential real estate market and the stock market.
In particular, here are my five main takeaways from my home-selling experience that apply well to investing in the stock market — or vice versa.
1. It is very important to do your own research.
I’ve found that many of the published articles on local real estate trends are overly biased on the positive side, especially if a realtor is featured. Unfortunately, the same often happens regarding stock research from many of the investment banks due to inherent conflicts.
This can be very misleading and, at times, result in costly decisions being made from both a buyer and seller perspective.
For example, upon conducting my own research with the help of my realtor, I soon discovered that the higher-end home market in inner-city Calgary actually tapered off considerably following the June flood.
This may have happened for reasons other than the flood, but the point is that the data was contrary to most, if not all, of the articles that were touting a very robust summer for higher-end home sales. Perhaps such sales were occurring, but certainly not in the market I was selling my home in.
2. Understand the bid and the ask.
Selling or buying a house, for the most part, is not unlike trading an illiquid stock. As an investor, it can be helpful to use reference points to assist in determining the bid or ask in such circumstances, which could involve the last sale price or the price of a comparable stock from a multiple perspective.
The same can apply when buying or selling a house. In the case of someone serious about selling, it’s important to understand what the bids could be and price accordingly. If the bid is likely going to be well below where you believe the real value is, simply don’t list unless you can benefit on the other side of the trade.
3. Don’t try to time the market.
This maxim especially applies if you are selling and buying at the same time in the same market.
Let’s say you sell your house but decide to wait because you think your target purchase is too expensive. What happens if the market rallies and you miss out on the trade?
The same can apply to the sale of a stock. Unless your intention is to go to cash, it’s generally beneficial to switch into a more desirable stock within a reasonable time period following the sale.
4. Know the difference between momentum and value.
It’s important to know what people want. A unique home will often take longer to find a buyer, while a more trendy home will probably move faster. Likewise, value stocks may take time for that value to be realized, while a trendy stock will likely move faster.
That said, beware that a trend today may not be your friend tomorrow.
5. There is value in getting professional help.
It is worth paying for professional help in many cases. Someone with extensive experience in the market will be able to assist with the aforementioned challenges and help maximize value in the process.
It is important to note that there are good and bad realtors and financial advisors, so do your homework.
Make sure the services they provide will appropriately match their compensation levels. Look for full transparency of fees, a full description of the services being provided and a fiduciary duty to act in your best interest.
Article and Photo from Financial Post.