The psychology of losing money

August 17th, 2007 by Kenric

The stock market has been going on a crazy ride in these past few months.  Trading options is almost a sure way to lose money.  But you just have to make more than you lose right?  Why is it no big deal to watch these huge daily fluctuations in my brokerage account?  I wake up, turn on the computer and I’m down $20k.  I go lunch, come back and I’m up $20k.  Just a $40k swing, no big deal????

For some reason, I can lose money on a stock or option and not feel too bad.  But if I lose money or will potentially lose money on a real estate transaction, it bugs me.  I don’t know why, money is money.

Can you imagine if your home value dropped $20k in a day?  (Well I know, it’s happened for some people)  I can watch a stock drop 30% in a day and think nothing of it.  But have a property drop 20% in a year?  That’s tough to deal with. 

I don’t think it’s the magnitude of the money either.  If you had 1000 shares of Google, your stock value just went from $550,000 to $480,000 in 30 days.  I’ve seen one of my homes drop just like that in a year.  The ironic thing is that people are probably adding to their position on Google right now.  In the stock market a $70k loss in a month, it’s no big deal.

I’m just venting because I’ve had an option drop 70% in 3 days.  I think I will pick up some Google though.  Let’s see how today goes, after all it is options expiration day!

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    1. 4 Comments to “The psychology of losing money”

    2. I think the reason is that stock prices can swing up and down on a daily basis. But real estate and real estate cycles take years. You’re not going to go to lunch and come back and your investment property is up $20k. If it was down $20k, it’s still down $20k.

      By knuckleheaded on Aug 17, 2007

    3. I think the reason is that RE properties are seen as “safe” or at least safer than shares. Probably you have a higher risk threshold for shares fluctuations, but not the same for RE.

      By Andres on Aug 17, 2007

    4. What the others have already said, and it has to do with the volatility of the Stock market. I suppose stocks are always seen as a higher risk investment than Real Estate, so ones tolerance to losing tends to be higher than Real Estate.

      By William on Aug 17, 2007

    5. I think real estate is a scarier for most people becacuse of the liquidity. While stock prices fluctuate wildly, its only a paper loss until you sell. You can always go online and sell your shares any time.

      Not so easy to liquidate in RE. No telling how long it takes to sell in a down market. And with holding costs such as mortgage, tax, insurance etc..real esatate can be a bigger money drain than holding on to a stock

      By Allen Young on Aug 21, 2007

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