August 23, 2010
Investors Skeptical of Stock Market and Housing and . . .
This weekend brought news that many small investors are exiting the stock markets at a rate similar to that of the 1980s. Similarly, people are (for the most part) not thinking of homes as long-term growth investments in the way they were five or six years ago. This is not shocking in the near term -- people are scared. Nonetheless, it's odd to me how small investors tend to operate. That is, despite the old adage of "buy low, sell high," small investors tend to do just the opposite.
Of course, not everyone is on the same page. One survey reports that numerous respondents in California, Boston, and Milwaukee believe that housing prices are poised to increase about 10% per year over the next decade. (Side note: I can't help but wonder if some people think just saying it will make it true.)
Perhaps the real lesson in all of this is that, as a group, people tend to have unrealistic expectations, in both directions, of our investments (among other things). We tend to view investments as doomed to fail or destined to make us wildly wealthy. Isn't it possible that the market, having now corrected in many areas, is poised for slow and steady growth?
I suppose that's easy to say when you live in North Dakota -- our housing market (but for a few oil-rich areas) has been stable and steady, but unremarkable, for years. It's why no one even brought sub-prime lending to the state -- little potential for rapid rises in home prices made such loans silly (I mean, sillier).
As a new semester begins (for me, tomorrow), here's hoping that the next year brings stable and steady growth in both markets in a way that a little confidence in the market, instead of irrational exuberance or its opposite, returns.