New To The Equity Markets? Play It Like A Real Estate Investor!

Real Estate has traditionally been the darling of Indian investors. Despite having a harrowing time over the past six years, many steadfastly hold on to their faith in Real Estate as the perfect instrument for long term wealth creation. Baby boomers will likely still take the smallest opportunity to regale you with tales of how they made a killing in real estate in the first decade of the millennium. Still others will fondly recall how the plot they purchased for Rs 1 Lakh donkey's years ago now has a price tag of Rs 2.25 crore. Why is it that although the numbers say that equities have delivered better returns than real estate over long time frames, the success stories from that camp are comparatively rare? The answer to this paradox lies not in the asset classes themselves - but in the WAY we approach them as investors. Here are four 'real estate' investing habits you should carry forward into your equity investing modus operandi, in order to extract maximum long-term mileage from your portfolio.

Intent
There's a fundamental difference in the intent between the average real estate buyer and the average stock market buyer - and this makes a world of difference. When you buy land or a piece of real estate, your intent is likely not to flip out of it in a few months or even a couple of years. Most stock market investors, however, as merely 'dabbling' instead of investing with any serious intent to hold on to their investment for long. For optimum results, intend to stay invested in your stocks for long.

Homework
When you bought your last piece of real estate, did you jump in with both feet on a whim, or did you do your homework before investing? It's likely that you did more than a fair bit of research, made comparisons, checked whether its overvalued, checked for issues within the locality, surveyed the surrounding infrastructure, and what not. When it comes to stocks though, most people just get in on tips or without building any knowledge of what they're getting into. Do the opposite - be as thorough with your equity investment research as you'd be with a real estate purchase.

Passivity
Once you've bought real estate, do you obsessively call your broker daily (or maybe more than once a day!) to check if the prices have moved up or down since you got in? No, because at the very least - you're worried that your broker would think you're unstable or irrational. And yet - when it comes to stocks or mutual funds, most investors check prices obsessively, and panic over the slightest downswings. We've even come across investors who check their Mutual Fund portfolios more than once a day - knowing fully well that NAVs will only change once, at the end of the day! Buck the trend and become passive with your stocks too. If you've done your homework about the companies you're investing into, there's no point fretting over the daily vicissitudes of the equity markets.

Patience
The plot of land that your grandfather bought in 1968 for Rs 75,000 just sold for Rs 2 crore. Sounds familiar? Here are two interesting derivatives from the above. One, the above stated works out to an annualised return of 11%. Two, your grandfather held on to the investment for half a decade! How many investors hold on to (even good) stocks for that long, bequeathing them to their future generations? A very small number indeed. The lesson here is quite simple. Investments reap rewards when you're patient. Sometimes, even good stocks take time to be recognized and achieve their intrinsic values. Make sure you hang in there instead of cashing out every stock time prices stagnate for a little while - just as you would with your real estate investment.