Trade Stocks or Buy Real Estate?
Which way do I go
Welcome to this week’s issue The Un-Normal Investor. Each week, I publish one 5-minute read that’s written to make you a smarter real estate investor.
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Nearly once a week I’m asked: What’s a better investment, stocks or real estate?
Comparing the two is like lining up an apple vs an orange. The two asset classes are so fundamentally different that I don’t even make an attempt at putting together a case for one over the other.
A much easier question to answer: Trade stocks or buy-and-hold real estate?
This is like asking a kid if they’d like asparagus or ice cream.
The smart answer is obvious.
Here’s why. . .
Unlike trading stocks, long-term real estate investing is a marathon, but most beginners perceive to be a sprint.
They make the same mistake as the Wall Streeters - try to get in and out as quickly and profitably as possible. This is a tough game that’s hard to win. The brightest Einsteins spend their entire careers trying to get this right, and they still end up wrong 9.99 times out of 10.
Real estate investing is a little different. Those that are successful, follow a simpler approach that has much higher odds of success. It goes something like this: buy right, sit tight, enjoy the ride and make great money along the way.
I settled on this thesis the hard way. I lost more money than I made in the stock market. And after taking my fair share of bumps and bruises, I backed away from the trading desk for good; doubling down on long-term buy-and-hold real estate.
Luckily, my bank account lived to see another day. Now here I am to help you avoid some of the pitfalls that I fell into while still early in my investing journey.
I created this diagram to help drive the point home: Hold-Time Trumps Market-Timing
The left side of the diagram depicts the plight of the short-term stock trader. Buy low, sell high (+ pay taxes), or lose on the dip.
The right side is a glimpse of the route that long-term real estate investors take. Pay a fair price, hold for a long time (+ cash-flow well), and refinance opportunistically.
This is the abbreviated version of the full story. It leaves out the not-so-fun parts of owning and operating real estate - management, maintenance, etc.. Nevertheless, it captures the big picture.
The purpose of today’s piece is not to downplay stock traders or house flippers. I have a tremendous amount of admiration for those that have a knack for finding the sweet spot in the market.
But the truth is, attempting to perfectly time the market is a risk laden way to invest. Even those with a crystal ball tend to misread the forecast the majority of the time. Compounding small victories over an extended hold period is often a more predictable approach to achieving the big win.
To the early-stage investor that’s found their way to the end of this post, I leave you with this:
Home runs aren’t the only way to win games; base hits get the job done just as well (with far less missed swings at bat).
That’s all for today.
What’s your take on today’s topic? Do you agree, disagree, or is there something I missed?
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