Investing Psychology: Normalcy Bias
Normalcy bias is one of the most lethal things that can happen to an investment. If you’ve ever said, “That will never happen to me” you suffer from normalcy bias. Don’t feel bad, we all do to some extent at some point in time in our lives. After the 2008 crash that even today still cripples the U.S. economy as we grapple one step forwards and two steps back towards a full recovery, I believe that people in general, ironically, have normalcy bias more than ever, namely due to the rose-colored glasses provided us during unemployment reports. Some say the housing market is recovering, and it is, right now. But, how high will oil have to go? How much more expensive will groceries and gas have to get? How low will the dollar have to drop? How high will gold and silver have to rise? How many more signs do we need to see before another major economic recession, some experts predicting 10-times worse than 2008, has broken beyond the horizon before the American people escape the normalcy bias? Have we not learned from 2008? Unfortunately, according to normalcy bias, they won’t escape; they will only recognize their denial when it is too late, when they lose jobs en masse, and when they can no longer pay their mortgages and will face homelessness or are forced to seek more economic alternatives, again. Will the middle-class seek mobile home parks as a viable and safe alternative next time? As the stereotype of the trailer park stands today, and if recent history is any predictor, when a large portion of the middle-class lose their jobs and homes in this era they don’t flock to apartments (they couldn’t give away enough free rent to get occupancy up) or to mobile home parks, but rather they pack up the family and move back in with their retired parents in single-family homes, especially if they have children. But, retiree’s can’t float the economy again. We saw the signs in 2006 but accepting them as reality was a different story. Had people not suffered from normalcy bias they would have sold their out-of-their-league homes and protected their assets by downgrading. But, few middle-class families want their children living next door to Eminem or an ex-con, and that is the stigma of mobile home parks. Each park has it’s own market, but some parks can do something about improving the image to capture a whole new untapped and “untouchable” market segment in the next economic upheavel. If the middle-class lose their jobs and homes again then the reality is that so will the current mobile home demographic of blue-collar workers and that puts mobile home park owners in a strained position to collect rents as well. So, right now is the time to begin strategic marketing campaigns appealing to families holding tight to American dreams but walking the tightrope of middle-class living.
Be the solution.