Investor Psychology vs Principles

If you are looking for rental investment property, you will find this website useful.

Finding properties and houses to rent is easy because of the abundance of great real estate available. Your investment is definitely worth your time, effort and money. It's important though to learn investor psychology and principles when engaging in property investment. You must remember that you'll be spending a significant amount of money in investing in properties, so any additional advice will be helpful.

Read some of these principles to avoid falling into the same traps as others have;

‘Overreaction bias’ is the idea that people tend to overreact to bad news and are slow to react to good news. (Richard Thaler, professor of behavioural science and economics Chicago University)

Behavioural finance is why investors and managers (and also lenders and borrowers) make systematic errors. It shows how those errors affect prices and returns (creating market inefficiencies). It shows also what managers of firms or other institutions, as well as other financial players can do to take advantage of market inefficiencies.

You have a chance, right now, to take advantage of other peoples overreaction bias away from property.

The current ‘Herd Mentality’ can be described as the tendency to rely on the safety of being part of a group, even when logic would indicate that we are acting irrationally. This could be the reason why we can see such a lack of activity on the property market. Everyone is adopting a ‘wait and see’ attitude.

Theory of Reflexivity from George Soros. "In certain cases," he says in his theory, "the participants' bias can change the fundamentals which are supposed to determine market prices." The current negative sentiment on property is self propagating the decline in prices.

Warren Buffet, who’s fund Berkshire Hathaway (NYSE: BRKA) doubled the US stock market’s average rate of return for a period of 40 years; seeks value and makes big plays on a buy and hold strategy (The Motley Fool, Tim M. Otte). This successful strategy could easily be transferred to property which lends itself to a buy and hold strategy because of the relatively high transaction costs associated with each purchase.

The same successful principals can be applied to the investment property market.