What are two things people tend to buy less of when the price goes down?
Normally, people like a bargain. When we go shopping, we feel much better buying things when they're 20% off or "Buy one, get the second at half price." But, there are two things that tend to buck this trend of buying when the price goes down. If fact, with these two things, people tend to buy more of them after their price has run up. Do you have your guess on what they are?
How about real estate and stocks?
According to the most recent S&P/Case-Shiller Home Price Indices, home prices on average across the U.S. are back to their summer of 2003 level, meaning, they're the cheapest they've been in about eight years. So, are Americans clamoring to buy homes? Nope. In February, new home sales in the U.S. fell to a record low on a seasonally adjusted annual rate, according to MarketWatch. Yet, during the boom times in 2005-2006 -- when prices and sales were at their peak -- people were buying homes like crazy and "flipping" them, according to the U.S. Census Bureau and Standard and Poor's.
Likewise, when it comes to stocks, history suggests that people tend to shun them when prices are down. For example, how many Americans were loading up the truck to buy more stocks as the market was declining to its recent low in March 2009? Not many. Yet, how many felt comfortable buying internet stocks in late 1999 as their prices were zooming?
These two examples suggest that housing and stocks are two major categories that defy traditional expectations. Knowing that, being a "contrarian" investor in these assets may be a smart long-term plan.
Data as of 5/13/11 |
1-Week |
Y-T-D |
1-Year |
3-Year |
5-Year |
10-Year |
|
Standard & Poor's 500 (Domestic Stocks) |
-0.2% |
6.4% |
17.8% |
-1.6% |
0.7% |
0.7% |
|
DJ Global ex US (Foreign Stocks) |
-1.9 |
2.3 |
17.8 |
-4.8 |
0.5 |
5.1 |
|
10-year Treasury Note (Yield Only) |
3.2 |
N/A |
3.6 |
3.9 |
5.2 |
5.4 |
|
Gold (per ounce) |
1.3 |
6.8 |
21.7 |
20.3 |
17.0 |
18.8 |
|
DJ-UBS Commodity Index |
0.2 |
-1.6 |
22.0 |
-9.6 |
-2.3 |
4.0 |
|
DJ Equity All REIT TR Index |
0.1 |
9.7 |
18.5 |
0.9 |
3.3 |
11.6 |
Notes: S&P 500, DJ Global ex US, Gold, DJ-UBS Commodity Index returns exclude reinvested dividends (gold does not pay a dividend) and the three-, five-, and 10-year returns are annualized; the DJ Equity All REIT TR Index does include reinvested dividends and the three-, five-, and 10-year returns are annualized; and the 10-year Treasury Note is simply the yield at the close of the day on each of the historical time periods.
Sources: Yahoo! Finance, Barron's, djindexes.com, London Bullion Market Association.
Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly. N/A means not applicable or not available.
