Stock traders generally differ from stock investors in the duration and purpose of their holdings. An investor may identify a stock that he/she feels will grow or provide dividend distributions over a long period, maybe years or even decades. A trader attempts to identify some catalyst that will cause a given stock to increase in value in a relatively short time.
The interesting part, and the part that reminds me of people who live in rental housing is that traders sometimes become "investors" in their own minds. That happens when a trader buys a stock, and the expected catalyst never happens. Then the stock drops so sharply in value that the trader doesn't want to sell it and lose a pile of money. So, the trader perceives that trade as a long term investment. The price is bound to go up sometime in the future. Thus, a bad trade sometimes becomes an investment, albeit a poor one.
Renters are traders. They live in temporary housing with the anticipation of some catalyst that will make their trade complete. They may be expecting to lose their job and be forced to find one in another geographic location. They may be planning on changing their domestic relationship status and combining households in the near term. They may be unable to meet the necessary terms for buying permanent housing. There are many reasons for being a temporary housing trader. Some of those reasons make more sense than others.
When does a housing trade become a (bad) investment? Well, how about when you were financially able and had no foreseeable catalysts that would necessitate another temporary housing trade? Maybe you had a hunch that there would be better opportunities next year. Maybe you were just scared, lacked the courage to make a lifestyle upgrade decision. Well, for many renters, that temporary housing decision may have evolved from a housing trade to a bad long term investment. Acting last year would have gotten a home for ten percent less, with a payment more than twenty percent less than a similar purchase today. That put the trade beyond the reach of many folks, and it turned their temporary situation into one that looks a lot more permanent.
If you feel that I may have described your personal situation, all I can offer is condolences. If you think you may still be able to make a decision in your own favor, call me.
Comments(4)