If investments didn't have a name, would people invest differently?


By edvard2   Follow   Fri, 16 Dec 2011, 11:10am   2,672 views   3 comments
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Something I've been thinking about per the repetitive commentary on this site is whether people invest in things more so because they "Like" the idea versus doing so for none other than cold, calculated mathematics and actual performance. In my opinion a lot of the reasons people invest in specific things- like real estate- is not all due to how well it actually performs- because historically it and other assets hasn't performed as well as other investments- is because the idea of doing so seems "cozy" or right. So in other words, it and other investments aren't really made with raw, non-emotional, financial reasoning as the overwhelming factor.

I would gander that people are more likely to put their trust into something they can physically hold in their hands- so to speak. Its so much less mysterious than investing in mere names, companies, and funds- things that aren't physical. As such one can seemingly feel they have more control of physical assets versus something non-physical- like stocks.

Thus the simple question of whether or not people would invest differently if the only choices were to pick from raw numbers- as in the actual, historical rate of return and profit from a list with no name indicating what that investment actually is. Take away the names " house", "Gold", "Fine artwork", "Stocks", "Bonds" and so forth and leave only their resulting performance behind. Take feel-good emotional reactions out of the equation and what would be the result?

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  1. uomo_senza_nome


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    1   1:47pm Fri 16 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    FOFOA's dilemma: When a single medium is used as both store of value and medium of exchange it leads to a conflict between debtors and savers.

    The problem with all your cold, calculated mathematics and actual performance reasoning (with raw, non-emotional financial facts) is that they all assume money is honest. It is not and that is the basic problem, why people would want to own real assets when times are highly uncertain.

    What is honest money?

    My definition is that honest money is simply money that does not purport to be something it is not. ~ FOFOA

    So instead of asking whether investments did not have a name or not, let us talk about the more basic question: do we have a honest monetary system or not?

    If the answer is yes, then I would say people (over the long run) would not deviate much from the assets that historically have a good rate of return.

    If the answer is no, then return of capital is more important that return on capital.

    Here's FOFOA's blog: http://fofoa.blogspot.com/2011/05/return-to-honest-money.html

    I know you'll probably think the guy is a crazy gold bug.
    I assure you, he's not. His posts are loooong, which is a PITA - but very knowledgeable in content.

  2. thomas.wong1986


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    2   12:52am Sun 18 Dec 2011   Share   Quote   Permalink   Like   Dislike  

    edvard2 says

    Something I've been thinking about per the repetitive commentary on this site is whether people invest in things more so because they "Like" the idea versus doing so for none other than cold, calculated mathematics and actual performance.

    Certainly has been the case in stock and RE over the past some 10-12 years. Sound measures of performance PE for stock and Rent Equivalent for RE has been largely ignored by the media and public.

  3. SFace


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    3   6:33pm Sun 18 Dec 2011   Share   Quote   Permalink   Like   Dislike (1)  

    edvard2 says

    In my opinion a lot of the reasons people invest in specific things- like real estate- is not all due to how well it actually performs- because historically it and other assets hasn't performed as well as other investments- is because the idea of doing so seems "cozy" or right.

    edvard2 says

    Thus the simple question of whether or not people would invest differently if the only choices were to pick from raw numbers- as in the actual, historical rate of return and profit from a list with no name indicating what that investment actually is

    You're taking the face calculation with the base understanding but not the underlying dynamics in applied mathemactics.

    I believe you are referring to how the S&P market return 7-8% return historically but real estate return about the same rate of inflation 3-4%, correct? 8% is better than 4%, no brainer.

    Real estate and other tangible investment have returns. (Direct receipts less cost) If I bought my house as a primarily residence, I also get a dividend that is reflected as rent avoided less direct cost like tax and insurance. If you layer in the dividend provided by owing real estate (or the avoidance of rent cost otherwise), it generally outperforms the S&P 500.

    An easy cross check is just look at the returns of a REIT fund. A REIT captures the cash flow as well as the appreciation similar to how an individual would owing real estate. A REIT fund has significantly outperform the S&P 500 historically. https://personal.vanguard.com/us/FundsSnapshot?FundId=0123&FundIntExt=INT#hist=tab%3A1

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