I have already spent too much time this morning wasting time. I should have written this hours ago and moved on to reading, but instead I woke up at 4:30 with a thought. Most investments fail because of some combination of sunk cost fallacy, hot hand fallacy, confirmation bias, survivorship bias, and hindsight bias. That last one might be the worst because it turns past regret into future decisions.
I’ll provide an example. One of the things I am bad at is noticing when I am noticing. For over a year now I have been pointing at the neighborhood across First Colonial from Alanton and Mill Dam neighborhoods. One side of First Colonial is priced like premier neighborhoods and the other is priced like it is 1982 even though the age and style of homes are the same.
It never made any sense and I always mentioned it as real estate is weird. How I should have thought of it is the real estate market missing the truth. That eventually logic and reason would catch up to emotion and status buying.
Saying you live in Alanton carries a different status than saying you live in Great Neck Meadows despite the physical conditions of the neighborhoods being nearly identical outside of the homes in Alanton that get to be on the water. Unless you have one of those homes it doesn’t make sense to pay double to live in Alanton than living in nearly an identical house in Great Neck Meadows.
People are not rational or irrational. They are emotional, and that is what drives prices. Whether it is in the stock market or the real estate market. For a long time I was beating the drum for this neighborhood and now, at least on Zillow, it looks like it is waking up.
This is something I need to remember in the future. Next time I notice a market condition like this pause and ask is this really the same or is my hindsight bias driving me to ignore the differences out of regret of not acquiring the mispriced asset when I had the chance.
David Huzzard Writes 