Real Estate, Charlie Munger, Risk Compensation, and Turning 30
Hey there, hope you had a good week.
Couple important things -
I’m looking to start a small mastermind group of veteran business owners. Monthly meets to learn from others and their industry, get accountability for continuing to grow, and a place to discuss wins, losses, and struggles. If that is interesting to you, reply to this email and I’d love to chat with you.
A popular LA real estate investor, Moses Kagan, has a heart for vets. This last week, he announced he’s doing a private webinar for vets about how to get into private real estate transactions, FREE. I’ll be attending and if you have any interest in RE, it would be worthwhile to check out. Here’s the thread with the signup on Twitter.
OK, going forward w this service members & veterans real estate webinar. (No agenda on my end, except to do something helpful for people I admire.) Goal: De-mystify the business of doing private real estate deals, discuss some ways into the biz, & answer questions. No charge.… https://t.co/G22aRGDGs1
4 Recommendations
How America Took Out the Nord Stream Pipeline
I have absolutely zero idea the accuracy of this article, but its clearly well researched.
An individual I greatly admire, David Senra, recently had a dinner and long conversation with Charlie Munger. David studies the worlds best entrepreneurs and covers them in his podcast and naturally has a lot of interest overlap with Charlie because of the shared interest in business. David compiled a list of interesting books he found on Charlie Munger’s bookshelf that subsequently got added to my list.
In preparation for an upcoming show with Doug Pugliese, an expert on ESOPS (employee stock ownership plans), I listened to this conversation with Doug on Meb Faber’s show. ESOPs are a great way for business owners to sell the business and unlock value without selling to a strategic partner or a flat out acquisition. Some fantastic companies have ESOPs and if you’re a business owner, is an exit plan worth exploring.
This week on the podcast I sat down with Neville Johnson. Neville is a British army vet, my first ex US veteran on the show, and a recently published author. His book, Sangin, published by DRC, is a book of poetry collected from his time. We talk about the value of family, how to handle your personal priorities, knowing what true defeat looks like, finding purpose in things outside of our service.
1 Thought on Risk
I was editing an upcoming episode with a gentleman in real estate that is a VA loan expert. We talked about the state of short term rentals and the current craze around everyone buying up Airbnbs. He said something that stuck me that I think is critical for how evaluate all decisions.
He said that despite the high potential value of Airbnb’ing a house as opposed to renting it out long term is all about risk and what you’re compensated for. When you find an investment that could potentially pay out a lot of money, its easy to be blindsided by the potential payout and ignore WHY the payout is so big.
When I first started investing in public stocks, I was attracted to high dividend yield companies, or business who paid out a high proportion of their earnings to shareholders. I sought out companies paying 10, 15, 20% dividend yields because look at what I’m making!
What I failed to understand is that the reason the yield was so high is because those were actually higher risk than a company paying 3-4%. It’s not realistic for a company to pay 20% dividend yield for a sustainable amount of time and that was the market “pricing in” the likely inability to do it.
In the Airbnb example, the guest said you could earn 1.5-2x long term rent on a house. To earn that however, you need to expose yourself to travelers potentially 10-20 times per month as opposed to a single renter. Those more rentals represent more opportunities for things to go wrong and thus higher risk.
The takeaway is consider the other side of the table when making decisions. The market is largely efficient and huge payouts on investments are extremely few and far between. Asking yourself the question “What am I being compensated for” is a good framing when evaluating a seemingly high upside scenario. If something is too good to be true, it likely is.
1 Personal
I turned 30 this week. Yes cue all the old jokes. Yes my back hurts.
Birthdays always tend to bring reflection on the last year, but something about the decade marker pushes my window to the last ten years which, in itself, is actually the most valuable insight. Getting older draws out our time horizon.
Adopting a long term mindset frees you from the need for overnight changes and allows the pursuit of slow moves in a known good direction. Its counterintuitive because we want quick change. There is a perception of just that one thing holding us back from being great and if only we knew or could do this, then it would be different.
Small incremental changes every day compounded over time should be what we strive for. Not lightbulb, zero to one type moves, but a clay pot on the wheel being refined by time and experience.
Ten years I’d find myself at the depths of a drug problem I didn’t know I had, sitting on the verge of a life changing decision to join the military. Today, I wake up every day thankful for that and eager for the chance to continue that daily pursuit. So much to be thankful for today down to the breathe sustaining me and you reading this. I appreciate you.
Talk next week.
B