Are you having a green day or a red day? One might think I’m talking about the red or green day diet, which suggests we eat red or green fruits and vegetables on certain days. Sorry, although that may be a great way to lose weight, it’s not what I was referring to. Nope, actually I’m talking about how the talking heads affect how we look at stocks in our finances.
There are some days when I look at my brokerage account and every stock or other holding is in the red (which means it ended lower than the day it was before) and there are some days I look at my account and everything is in the green (which means they all went higher than the day before). That’s how the stock market works, some days it goes up and other days it goes down.
Looking at it from a profit stand point, lets just see why the green and red days shouldn’t matter, as much as the price we bought the stock at and the price it is the day we sell it. It should be fair to say, that if we held onto a stock for 30 years, it’s likely to be valued higher when we sell it.
Lets just say, we bought a stock on a red day, then a week later, it’s $2 higher than where we bought it, but it’s lower than it was the day before, so it’s going to show up like it’s still a red day, but in reality it’s still higher than where we bought it. That’s quite similar to the psychology of when we buy a home.
Sure, many home buyers feel that they bought their home on a green day and have seen many red days since that first green day. Interestingly enough, people love to buy when everyone’s buying. They don’t usually want to be the first chicken to step out into the busy road.
After a few years, they may have made 36 payments on their home, but if their home is still worth more than the payments they made, they are still having green days dollar for dollar, aren’t they? Now, many homeowners who would have loved to walk away from their homes when they declined, held onto their home even when they purchased it on a “green day”. They may not even have put down 20% when they bought it, but they know if they kept that home for the next 30 years, what it has declined is not a realized loss until they sell it. The kicker is they still have possession of 100% of it. They still get to live in it, enjoy it; they still get to paint the walls the colors they want, and as of now, they still get to reap all the tax benefits that come with homeownership.
Now here we are, in 2011, 5 years after the market began it’s decline and pretty much in what most economists would agree with many “red” days behind us. So, why wouldn’t everyone be buying a home? If lawmakers get their way, and homebuyers have to plunk down 20% cash before purchasing their first home, that’s going to leave a lot of hardworking people renting for a very long time. Let me ask you this just one time, would you rather buy your first home on a green day or a red day?
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