Given the HOT activity the residential market has had since the covid pandemic, how would you, if you had to guess right off the bat, assume the big players’ stock is doing?
Realogy, Zillow, eXp, ReMax, Redfin, Opendoor, Compass, Fathom Holdings…which one has had the most impressive 2021? But first, without looking at the numbers or the internet, which one would you assume to be doing the best? How are you making that assessment? Comparing how well the stock price is doing versus how much marketing reach, or how much these stocks are being talked about is what I’ve quickly done. I found that the relationship between “hype” and actual performance might not be direct and that’s a good thing.
Emotional Investing
Before I dive into the performance of the stocks, there is one thing I’d like to point out. As of late, the stock market has been operating less and less rationally. Scott Galloway explained on his youtube channel how fundamental investing is not the way the market is currently valuing its stocks. The entire Robinhood/Gamestop fiasco is another piece of evidence in favor of such emotional investing. We’re even seeing big names in the internet space like Dave Portnoy put his name behind Buzz ETF, which is an investment vehicle that buys and sells stocks based on how much they are mentioned in message boards and social media. This is a long way of my saying, the stock market–because the internet and technology have enabled everyone to invest and not just highly trained institutions–is going through a transition where stock prices are moving less on fundamentals and more on hype, marketing, and emotion.
While I think it is definitely a good thing that investing is becoming democratized, we’re going through some growing pains as average people begin to learn that emotional investing is not a good way to capture long-term value. That said, if a stock gets hot on message boards or a “screw the hedge funds” narrative gains popularity and leads to a short squeeze, who is anyone to step in and prevent that from happening? Basically what I’m saying is, the stock market is very emotional these days, it’s because investing is becoming more democratized, and institutional/fundamentals investors have to just deal with it…for now.
How Much Does Emotional Investing Matter?
Well, I did a quick graph on the stock performance of those companies since Nov of 2020 and the results are not exactly what I expected. Especially considering the market trends I’ve outlined above. 
I never would have assumed Realogy is the highest performer of 2021 with a stock price increase of 76% given their relatively low marketing spend. Google trends shows Realogy’s coverage to be a fraction of that of especially as of this past year. Since Q1 2020 they have spent 273 million dollars on marketing. Compass spent 217.8 million on marketing in just Q1 of 2020 and 2021 alone. Zillow, similarly, spent 866 million, yet its stock has struggled, especially in recent months.
How Much Does It Really Matter?
I am under no illusions that there are other more important factors at play than just marketing spend. Obviously factors like revenue per agent, total homes sold, average price per home are important factors, if not more so. Blackrock certainly pays little heed to the whims of Wallstreet Bet bets.
It is just interesting to think about the volatile real estate stocks right now in the context of a changing stock market. Retail investment is here to stay, message boards like Wallstreet Bets are also here to stay. That is going to make the market much more narrative based and less finance fundamentals based. It will be interesting to see how the big players factor that into their spending in the ensuring months.
I will also do a much deeper dive into understanding what is causing these price drops. Rob is a great guy to learn from. Stay tuned.
Also, if you have any strong feelings as to what is going on and why big name stocks are going down, leave a comment!
-pntr
