When you are trying to make a decision in life, particularly a financial decision, one of the key aspects you need to seperate is the reality from the sentiment. It’s also often where the best opportunities lay.
What I mean by this is that sentiment is a fickle thing that doesn’t always match reality. The most identifiable example of sentiment change is the stock market. The stock market is an index of companies that have a value placed on them on a daily basis. This value is usually based on a company’s current operating status but also its future prospects. These future prospects are open to interpretation. Analysing companies is big business made up of economic crystal ball gazers and a negative analysis can send the share price tumbling, yet the companies current operating status may not have changed. All that has changed is the sentiment towards that company.
This extends to the property market also, although it is not as fluid because properties do not have daily visible price adjustments. Sentiment change in the property market is again often facilitated by economists predicting what “could” happen and then main stream media, on their never ending search for a headline, over dramatising these predictions. This will never change.
The opportunity lies in separating the reality from the sentiment, backing your judgement and making a call. The world’s greatest investor, Warren Buffett, when asked about his secret was he simply replied “we simply attempt to be fearful when others are greedy and greedy when others are fearful.” Sentiment is essentially the mentality of the herd being fearful or greedy.
So when the sentiment of the herd overreacts, take a close look at how much is psychology and how much is reality. You can buy very well when everyone is selling and you can sell very well when everyone is buying. With recent sentiment changes in both the property market and the stock market there are opportunities everywhere, you just need to be smart enough to seperate yourself from the herd.