How Election Predictions Can Improve Your Real Estate Business

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No, I’m not going to make my election prediction…at this point, I’m probably only about 80% chance of being right… :)

But, I wanted to discuss something not at all related to real estate in hopes that it will get you (and me, as I’m writing it and afterwards) to think about the real estate implications. This will most likely turn into rambling, but I’m thinking about it, so I figured I write about it…

There was an “Off-Topic” thread started the other day that threw out an election prediction that was based on whether a particular football team won a particular game. The specific team and game had been a reliable predictor in 17 of the past 18 Presidential elections.

I didn’t want to bring up this topic in that thread (as it was more about political battles than statistics), but it got me thinking about the election, statistics, and how the correct application of data can provide insight that can be used to generate massive competitive advantages in business and investing.

Before I get to where I’m going, the first thing I did when I read that thread was a little bit of math regarding the football team prediction claim. To correctly predict 18 events that are — in theory — 50/50, the odds are about 260,000 to 1. The predictor in this case was only right 17 out of 18 times, but we can ignore that detail, as it just makes it more likely.

Given how many high-profile repeated events, games, sports, weather patterns, etc happen in the world — certainly many, many more than 260,000 — it’s not surprising that someone, somewhere found another pattern that happened to match up in results to the previous 18 election results. But, that pattern had absolutely no predictive abilities — the next event had a 50/50 shot of being a correct “predictor,” and in this case, it was wrong. I’m sure people will still look at it as being right 16 out 18 times and think that still means something, but even if it were 18 out of 18, it’s meaningless.

Which brings me to my interesting point…

There are good predictors of the winner of the Presidential election — they are math nerds (I can call them that, most people consider me one also :)) who spend much of their lives sorting through information, correlating data, analyzing relationships, finding patterns, and then using the results to generate what is essentially polling results on steroids. The guy I’ve been following for a couple election cycles is Nate Silver. Here is more about him.

Long-story a little bit shorter — Nate predicted 49/50 states and the percentage results of the popular vote in 2008 and it looks like he picked 50/50 states and nailed the percentage of the popular vote last night. Two other statisticians who do the same thing as Nate had similar predictions, and all three pretty much nailed the election results.

So, what does that have to do with real estate?

As I said earlier, pretty much nothing. But it could…

The point here is that for the most part all real estate investors have the same information. Almost all of them will look at the data, glean some high-level points from it and move on. If they all do that, they all still have the same data and nobody really has any competitive advantage over anyone else.

But, it doesn’t have to be that way!

Just like Nate Silver takes polling data (the same exact data that you and I get from our preferred media outlets) and digs deeper to get more and better information, we can do the same with the information we have on our local real estate markets and our businesses. We don’t have to be math nerds or PhDs to dig deeper and glean more information, but by gaining a healthy understanding of statistics and getting comfortable looking at a LOT of data, there’s no reason people like you and me can’t glean more and better data to generate a competitive advantage over other investors.

Just something to think about and to aspire to. This is what I aspire to!

Photo: Dave Hopton

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3 Comments

  1. J, I hadn’t heard of Nate Silver until about 3 days ago. His data analysis is remarkable. I hope his research will put an end to the pundit industry. I can’t stand the blowhards on both sides of the political fence. There’s a number cruncher here in Phoenix I follow religiously. His name is Michael Orr and his website is cromfordreport.com. Mr. Orr called the top of the market in 2006 and the bottom in 2009. If only I had known of him back then. It would have saved me millions in real estate losses. Great post!

  2. Using a term from nate’s and my background, basically all this is is sabermetrics for real estate. Use data, find undervalued assets and use them to be successful. This is how I envision investing myself, just need the right data.

  3. I like to read a lot and a few days ago I was reading something about statistics. It was talking about a farmer’s wife who was selling eggs. She decided that if she doubled the amount of food she fed the chickens she would get twice as many eggs to sell. So she doubles the feed and ends up with some fat hens that do not lay any eggs. Moral of the story was: You can’t always trust statistics.

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