There have been plenty of people burnt in the Queensland mining town property boom. Investors who took a punt on the never-ending coal boom have certainly taken a bath.
Reports show prices on some individual properties have fallen by as much as 80%.
Places that were renting for $2,000 per week are now renting for $180.
I was speaking to one such investor during the week. They have decided they won’t sell “until they get their money back”.
This is such a common response to a poor investment. The pain of losing a dollar is so much greater than the joy of gaining the same amount.
In fact, our need to avoid a loss can be so great, we can become incapable of sound judgement.
So what should you do if you are staring at a big loss. Do you cop it and move on or hang on and hope it will bounce back?
Well, that all depends on the circumstances.
However, I have an observation to share after watching a lot of people lose a lot of money on dud investments deals over the years.
Time does not turn a bad investment into a good one.
The reality is, that money is gone. You can anchor your expectations on getting back to where you started, but what you paid for that investment is irrelevant to the next buyer.
All you can deal with is the here and now.
The question to ask yourself is, given what you know about the investment right now, being its growth potential, its income, risk, affordability and so on, would you buy that investment today?
Loss aversion is common condition.
Think about it – facing a loss, do you sometimes freeze and refuse to acknowledge reality?
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