‘Anchoring’ is a problem with which many of us have to live. We get into some belief and REFUSE to give it up EVEN in the face of tons of data to the contrary.
Suppose you had bought Bharti Airtel a few weeks ago at 370, YOU BELIEVE that the price of Airtel is 370 and the market is crazy to beat it down to Rs. 340.
HOWEVER YOU REALIZE THAT IF YOU HAVE TO BUY OR SELL TODAY, the price is Rs. 340.
Now take the case of this friend who has bought a decent size house in Gurgaon. He has bought it for Rs. 2.4 crores – out of which about Rs. 1.5 cr is a loan from Hdfc.
He had given it on rent, but the rent yields there were (are) quite abysmal, especially in the higher size segment. He has been able to keep the house on rent for just 6-9 months every year. This has dramatically reduced his IRR considering that the building maintenance costs are high and BORNE by the owner. He had ‘heard’ that the price of the flat had gone to about Rs. 3.2 crores and was happy (though he is far from making money if one considers the brokerage, the interiors expenses, the transfer charges to the building, etc.) but at least it was a feel good factor.
However, when he went to a broker, the broker told him ‘Sir you will get about Rs. 2.5 cr’. This sent him in a tizzy and he is yet to wake up. The problem is he is now willing to sell ONLY AT Rs. 3.3 cr. BECAUSE HE HEARD 3.2!!
This problem is called anchoring. He does not have a tenant, and he is refusing to drop the rentals (which the broker is insisting -saying Sir you will get a higher rent!!). Meanwhile the EMI is a tremendous pressure – with the missing rent cheques. His wife wants to give up her job – and he feels that it is an inappropriate time to do so.
So last time I met him he sent me his Valueresearchonline.com for me to tell him which mutual funds to sell so that he could reduce the size of the home loan. That would make his portfolio MORE CONCENTRATED on RE.
And there is nothing that I can do to help him.
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