There are some deep beliefs that you cannot question. Let us say the scientists in the world believed that the world is flat. It means many years of research including greats like Aristotle who had not said anything to the contrary.

So if I were a scientist in that era and a few guys like Galileo and Bruno came with the theory that the world is well, er round – sphere. Typically Galileo was lucky – both G and B were arrested – but Bruno was burnt at the stake. Well, do not dare to disagree.

Why am I bringing it up here? Cognitive Dissonance is what happens when you hear something that is contrary to your thinking. It increases your blood pressure, you may sweat, nervousness, irritability….and hatred for the messenger. So when I say ‘Real estate is not a good investment…’ I hope I do not get lynched. Or if I can prove to people that they have underperformed PPF over a 10 year period. Complete denial is “How can I underperform ppf – I have invested in good companies – Colgate, HUL, L&T, SBI, Hdfc…..Well I do not know, but excel is a cruel tool  – it tells me you have got 7%, is a HATED answer.

Asset allocation is a must – you must have debt, equity, cash and real estate in your portfolio – is again met with “Debt gives lousy returns…’ However Hdfc Prudence fund has outperformed many equity funds on an SIP basis – maybe thanks to the 2008 and 2009 ‘V’ shaped market movement.

So if you hear that I got lynched you know one / a few readers of subramoney who had cognitive dissonance. Or ask Galileo. His family would have been happy that he was only arrested and imprisoned and not burnt like Bruno. So the most important lesson is when I am hearing something which I do not LIKE to believe or goes against the model of my thought, I should keep cool. If I am telling somebody what he DOES NOT WANT to believe….I should be cool and do it in small doses.

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  1. Dr Mohammed Ali Khan

    Dear Subra
    I admit I too had ” Cognitive Dissonance ” when you said about real estate.. Coming from a middle class family platitudes like ” Buy real estate.. Its going up ” … ” Buy land.. They are not making any more of it “.. Your uncle bought this property 20 years for a few lakhs.. Now its selling in crores ” are almost axiomatic like ” Ice is cold” and “Stove is hot “…

    But, I admit that I did not want to lynch you.. you opened my eyes..

  2. Hi Subra

    point well said -good company & good investment are pole apart -paying 30-40 times of earning of a company in exuberant times -well paid for all future growth where the up movement is very low & down potential are very high

  3. Point well said shubra, however, for most people real estate Vs anything else in terms of investment results in cognitive dissoanace. Most investors usually tend to turn there back on NPV & impact of inflation on money. Bottom line being that someone having a couple of lacs 15 years ago to buy a flat in sub urban mumbai or delhi is pretty much equal to having 1.5 Cr in today’s time.

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