New to Equities? Play it like Real Estate!

Real Estate has traditionally been the darling of Indian investors. Despite delivering poor returns for close to a decade now, many steadfastly hold on to their belief in Real Estate as the best wealth creator. And it’s a fact that many investors have in fact earned good long term returns from real estate, while far fewer have made money in stocks (only around 15% of Indian household savings flow into stocks, compared to 45% in the U.S).

Why is it that although the numbers say that equities have delivered better returns than real estate over long time frames (12-14% versus 10%) , the success stories from equity investing are rarer? 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 that could benefit you greatly while building your stock 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. Change that, 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 ups and downs of the equity markets.

Patience

The plot of land that your grandfather bought in 1968 for Rs. 75,000 just sold for Rs. 2 Crores. 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. Did you know that Warren Buffett has been holding on to his shares of the Coca Cola company since 1994? That’s almost 28 years! Most of us barely hang on to a stock or equity mutual fund for even 28 months. The lesson here is quite simple. Investments reap rewards when you are patient. Sometimes, even good stocks take time to unlock value. 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.