Playing the Investment Game Right

Stocks and real estate both play significant roles in the world of investment. But, investing in each is like playing two entirely different games with their own set of rules. Just because they’re both related to investment doesn’t mean they behave in the same way.

Different Game Rules

The Real Estate Game: Imagine buying a house or an apartment not to live in, but to sell it for a higher price later or to rent it out to someone. If you decide to rent it out, you’re hoping that the rent you collect will cover any mortgage payments and maintenance costs. Over time, as the neighborhood becomes more popular, the house’s value might increase. Later, you could sell the house for more than you bought it; this is called capital appreciation. This is the common story in real estate, driven by:

1.Demand Factors:

• Human needs, revolving around the fact that everyone needs a roof over their head
• Cities with economic growth and increased migration often see rising property values

2. Supply Factors:

• Land is limited. This scarcity, especially in popular areas, can push property prices up
• The supply isn’t uniform across all types of properties. An area might have an abundance of one type, like apartments, while facing a shortage of another, like villas, which can impact their respective values

3. Appreciation Hotspots:

• In the real estate world, there’s a general consensus: the longer you hold your property, the more you’ll benefit when you decide to sell, example:
  In Dubai, a very popular location is called Palm Jumeirah. Over the years, people who bought apartments and villas there and held onto them saw their value increase. When Palm Jumeirah properties first became available in 2004, a simple sea-view apartment was priced relatively low compared to the current value of properties on the island which has surged, providing investors with significant ROI. For instance, a 3-bedroom townhouse, initially priced at AED 1.7M, now falls between AED 7.8M and AED 9M. Similarly, Garden Homes which were introduced at AED 2.6M saw a substantial appreciation, reaching values up to AED 30M, as reported by R. Insight Real Estate.

The Stock Market Game: Now, let’s switch to the stock market. Here, there are no fixed rules and although it’s tempting to handpick individual stocks, dreaming of striking gold, remember this along the way: investing in single stocks can be extremely risky. Historically, those who diversified through tools like ETFs and index funds often reaped more consistent returns over time. The rollercoaster ride of the notorious GameStop stock phenomenon is a stark reminder of this risk. Due to retail investor activity, its stock price surged, then plummeted soon after. For many adventurers on this thunderous journey, it was a ride they won’t forget. Let’s take a closer look at the data from Macrotrends for GameStop’s stock performance over the past few years to get a general feel of the stock market volatility:

• 2019: The year began with the stock priced at $3.1579. By year’s end, it had dropped to $1.5200, which is a sharp decline of over 50%, leaving many investors scratching their heads.
• 2020: GameStop started the year at a humble $1.5775 but saw an unexpected peak at $5.2475. Closing the year at $4.7100, the stock saw an astounding rise of almost 210% from its starting point that year. A surprising turn of events for those who stuck around after 2019!
• 2021: This year was nothing short of a whirlwind. From starting the year at a mere $4.3125, the stock skyrocketed to a staggering high of $86.8775 before settling down to close the year at $37.0975. That’s an astronomical annual growth of 687.63%! Investors who got in early might have felt like they hit the jackpot.
• 2022: After the euphoria of 2021, 2022 brought GameStop’s stock back to earth. From opening at $38.2100, it plunged to a low of $17.9200 and ended the year at $18.4600. A dramatic fall of over 50% in just a year
• 2023 (Up to Now): As of the most recent data, it stands at $13.4400, marking a decline of 27.19% from the start of the year

But what was behind these wild swings, especially given GameStop’s $216M debt?
Whispers of a potential short squeeze—a rare market event—began circulating in January 2021. However, it wasn’t just market dynamics at play. The retail investor community, sustained by internet chatter, played a pivotal role. And then there was Elon Musk’s infamous ‘GameStonk’ tweet, acting as a catalyst for another spike in interest and price.
The GameStop story shows us the unpredictable nature of the stock market. Within a span of a few years, the stock saw monumental rises and sharp falls. One year you could be making exponential gains, and the next, you could be witnessing significant losses. It’s a clear example of why the stock game is often considered high risk and high reward.

Different Playbooks
Stock investors often look for quicker gains. Some might choose to cash in on their investments within a few weeks, especially if they see a 20% to 25% gain. In contrast, real estate investments are generally approached with a longer horizon in mind. Given the tangible nature of property and the dynamics of supply and demand, holding onto real estate for an extended duration often sees greater appreciation and returns.
The key is to understand the inherent differences in the selling and buying processes of these two asset classes. While stocks might offer rapid returns and require proactive decision-making, real estate tends to reward those who wait.

Ending Note: The safest route is through diversification! Diversify your investments, so that even if one asset class falters, the rest of your portfolio remains resilient and continues to thrive. Consider your financial goals, risk tolerance, and time horizon. And always remember in the real estate game, patience often pays off. When you exit your investment, holding onto a property for an extended period, can lead to greater rewards.