Why you shouldn’t invest like you’re playing poker

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October 20 2020
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Investors are being warned to follow the numbers instead of emotions when looking to purchase properties.

The CEO of property investment company Custodian, John Fitzgerald, said investors buy property like they are playing poker, basing their decision on gut instincts and not on the data.

“That is the biggest mistake I see,” Mr Fitzgerald said.

“Investment is not about emotions; it is about the numbers, and that’s where your focus should be.”

His approach is backed by psychologist and professional poker player Maria Konnikova who said on a podcast that even though you could show people all the data, it won’t change their behaviour, decision or perception of risk.

Ms Konnikova said a lot of people put their faith in using their “gut instinct”, but many studies revealed it only worked in someone’s favour 50 per cent of the time.

“Our instinct is to follow emotion and intuition. I would feel like I made a big difference in the world if I got people to stop staying, ‘I’m just going to follow my gut’,” she said.

“Why in the world would you ever go with your gut over your brain? We want to do it all the time, we say ‘my intuition says’. Let me tell you what my psychology training says, it says that we have lots of intuitions and some of them are right and some of them are wrong.”

The researcher noted that all the psych studies on intuition show that we have a 50/50 chance of identifying correctly which ones are right and which ones are wrong.

“So, what does that mean? Follow the data, follow the numbers,” Ms Konnikova said.

Mr Fitzgerald said while this lesson can be applied to business, it is important property investors follow the same principles.

“Following the data is what will help us navigate the COVID crisis and identify where the opportunities are,” Mr Fitzgerald said.

“Succeeding in property investment is all about making sure the numbers stack up.”

The CEO pointed out that motivation for the property is also important, with investors having different mindset and goals compared with owner-occupiers.

“If you are buying a house to live in, that’s the time to buy with your gut and let your emotions rule your decision,” Mr Fitzgerald said.

“If you are buying a property for investment, a sure way to fail is to let your emotions make the decision for you.”

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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