TVC Investment Group
June 27, 2022
Money Education Financial literacyHelp Me Understand
“Help me understand….it just doesn’t make any sense.”
“What’s that Mrs. G, what doesn’t make sense?” I asked.
“Yesterday, I had tea with my neighbor” she began. “We’re really good friends, our kids have grown up together, it’s just been wonderful to have them as neighbors. But, I’m a bit sad because they are thinking of selling their home. If they do sell and move, I will miss them.” A very understandable thought. “But…”she said, “what I don’t understand is the thought process around the selling mentality.”
“What do you mean?”, I asked. Housing prices were up nicely and they had made a very good, tax free profit on their home. They had lived there for over 20 years, maintained the home meticulously, it was across the street from a park and close to schools. The house would command a great price and would likely sell very quickly.
“This is a conundrum I’ve wrestled with for years” she said. “A few years ago, the housing market wasn’t very good. Listings stayed on for months with no interest from buyers, lots of new builds sat vacant, prices came down as a result. Prices got so low, no one in their right mind wanted to sell. What I don’t understand relates to stock markets and investing.”
“What’s the dilemma?”, I asked.
“Well…”, she said with her signature smirk, “when house prices go down; why don’t people say my house has gone down in value so much I can’t stand it, I have to sell it, I have to move… but they do exactly that when stock prices go down. Help me understand because this makes no sense to me, are investments like shares and bonds the only thing that people lose their sense of logic?”
We did not have an answer for Mrs. G that day. Her thought process was as wise as ever and that nugget of wisdom remains. She did go on to tell me that during that time in the real estate market when prices were dismal, she and her husband bought an apartment near the university. They bought at a very reasonable price, not the bottom but a reasonable price. They intended to rent it out until such time that perhaps their two children would want to live in it when they attended university, saving the commute time for further studies. The neighbors thought they were crazy to take on the hassle of being a landlord. Fast forward a few years, and the two children chose to pursue post-secondary education outside the city. Real estate prices had recovered nicely and Mr. and Mrs. G decided to take advantage by selling the apartment. They had made a tidy profit and used part of the profits to go on a memorable family vacation to Europe. The kids, now grown adults remember this trip to this day and it might not have happened if Mr. and Mrs. G. followed their neighbor’s logic.