How do you invest?
Herbert Simon won a Nobel prize in economics in the 1950s as he studied consumer purchasing behaviours.
He came up with two subconscious patterns (which means you have little conscious control over them) that rule over our decision making ability when it comes to investment decisions – including investment property. I see both these behaviours on a daily basis, one kills the other frees, these are especially present when a client is just starting out in property investment.
Simon's two patterns surrounded the thought process and buying behaviour – in other words peoples actions as they bought things.
In our case we would apply it to choosing a property to buy.
The two patterns that buyers fall into are:
Maximiser – these buyers have to buy the perfect thing, everything has to be perfect, no amount of research is too much and no amount of time spent is not time well spent. These people have to maximise every decision and normally even after they buy they keep looking for a better deal.
Satisfier – these buyers are content that they may not find the best deal but as long as it ticks the boxes and they deem it adequate then they are content to press forward. They don't have to check every shop, the internet prices, every brand. They will find a suitable and adequate product and buy it then move on.
Which do you think you are?
Think about it for a second, how do you shop for clothes, for groceries, more importantly for property?
The thing about these patterns is that you may fall into one for a given product and a different one for another, it is not a fixed concept.
- Maximisers engage in more product comparisons than satisfiers.
- Maximisers take longer to decide to purchase than satisfiers.
- Maximisers spend more time than satisfiers comparing their purchasing decisions to the decisions of others.
- Maximisers are more likely to experience regret after a purchase.
- Maximisers are more likely to spend time thinking about hypothetical alternatives to the purchases they've made.
- Maximisers generally feel less positive about their purchasing decisions.
- Maximisers savour positive events less and don't cope with negative events.
- After something negative happens, maximisers take longer to recover from it.
The price of being a ‘maximiser' property investor…
Maximisers are likely to pay a significant price to their personal well being. Stress, worry, and the feeling that when things go wrong they are bigger than they actually are, are all likely symptoms of maximising. It may become a source of dissatisfaction, making them miserable and decreasing the enjoyment of the decision. Imagine the stress of thinking you hadn't got the best deal on a holiday – now imagine the stress if the holiday was an investment property and the impact on your lifestyle.
Worse still is where their maximising pattern stops them from investing. I've proven beyond a doubt in my life and I am sure you all know that even a poorly bought property given enough time will make money but a property never bought cannot possibly hope to make you money. Remember there is no perfect investment property but there is a perfect timing.
Procrastination is a maximiser strategy.
With respects to property investment I am not saying that you should just go and buy anything at all but if you've been ‘ummm'ing and ‘arrr'ing for months then it might be time to overcome the maximising and embrace the satisfying.
Let's face it, when it comes to making a property investment decision it turns out that satisfying is in most cases, a maximising strategy.
So if you're ready to embrace your satisfier and overcome your maximiser then that's where my team can help, give them a call on +44 (0)207 923 6100.
Live with passion,
Brett Alegre-Wood
