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The ‘Superior’ Investor and ‘Better Than Average’ Results

by Jeff Brown on April 18, 2014 · 9 comments

Superior Results

I’ve been on a tear lately, only reading books I’ve already digested.

I was reminded of one of my all time favorite quotes, addressing superior investment results and long term success exceeding market averages.

“It is no difficult trick to bring a great deal of energy, study, and native ability into Wall Street and to end up with losses instead of profits. These virtues, if channeled in the wrong directions, become indistinguishable from handicaps. Thus it is most essential that the enterprising investor start with a clear conception as to which courses of action offer reasonable chances of success and which do not.”  – Benjamin Graham. “The Intelligent Investor, Rev. Ed.”

Change “Wall Street’s stocks n’ bonds” to “real estate” and the quote still applies 100%. That short excerpt is a sharp and painful rebuke to those who think they’re smarter long term than the market in general.

We can all name an exception or two who deviate from that belief, but as the wise man said, “Those very rare exceptions only serve to prove the rule.”  I’ve found that to be the case.

What separates the long term, retirement motivated real estate investor from the herd?

One of the most common answers given is that judgment is the ultimate difference. I think that’s far too ambiguous, and for the most part, also a bit disingenuous. Judgment in what arena? For how many years? Between what choices? In real estate as in any serious investment arena, we’re all geniuses when allowed to incorporate 20-20 hindsight.

The ability to conduct credibly reliable micro and macro analyses is critical to success. Captain Obvious for sure. But too much investment capital is destined to morph into capital losses as a consequence of either no macro analysis, or one woefully inferior. In fact, experience has shown me that a thoroughly conducted macro analysis can often conclude any micro approach would be a literal waste of time.

Adhering to fundamental investment principles takes much of the perceived need for so-called superior judgment off the table. After all, what most of us discern as superior judgment is the after the fact dissection of a successful long term investment. When in reality, long term success comes more from the inclusion of the aforementioned principles, not some guru like judgment.

RelatedLong Term Real Estate Investment Success Doesn’t Come From A Recipe

There are many of these principles, but a few of them won’t be ignored without causing chaos sooner or later.

  • Location Quality
  • Rent/Price Ratio
  • The in depth understanding of what leverage actually is.
  • Having a detailed Plan in place, including what strategy or strategies will be employed.
  • Using, when possible, multiple sources of income.
  • Utilizing several strategies with the objective of creating synergistic results.
  • Flexibility — The wherewithal to adapt to changing circumstances, and quickly if need be.
  • Cash Reserves — and more than we think ‘adequate’.
  • Investing in value, not sparkle.

We can cuss ‘n discuss whether or not judgment rules over the dozens of fundamental principles guiding successful real estate investing.

It’s not that solid judgment isn’t required. It’s that judgment based upon those very principles is what ensures the judgment is sound.

The myriad decisions made by a long term, long time investor are based upon principles which have been studied, honed, followed, and perfected. It’s one thing to know and understand them. It’s quite another to demonstrate the essential discipline needed to actually apply principle to judgement — another way to say making good choices.

RelatedThis Powerful Principle Will Increase Your Willingness to Produce Results

The Takeaway

Those who’ve enjoyed bountiful success over the long haul, have demonstrated mastery of the principles involved, not some sorta other worldly, superior judgment.

In my view, judgment without the impregnable foundation of investment principles is how the market separates too many investors from their capital.

The very thought that it’s possible for them to beat the average market performance is almost always the beginning of the end. The real estate investment arena is strewn with the carcasses of those who thought their judgment would get them to the retirement pot of gold.

In countless ways these many, many principles are akin to the world of physics. Judgment sans the laws of physics always lands us wrecked, and in the virtual (sometimes literal) ditch. No amount of judgment allows us to willy nilly defy gravity. When we base our long term real estate investments upon anything but principle, the ditch awaits.

It’s the principles that are superior, not the investors, or God forbid, their judgment.

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{ 9 comments… read them below or add one }

David Shafer April 18, 2014 at 6:14 am

Jeff, one of your best post ever. A sure fire hall of famer!
Warren Buffett, one of Graham’s disciples, is instructive. I think you need to look at each Real Estate purpose as a business [as he does] that you will own forever [whether this is the ultimate strategy or not]. That forces you to look at it fundamentally; cash flow, condition, location, reserves, management, etc. And you need to have the patience to wait until the price is fair for that business. Patience is the key. There is time to buy and time not to buy.


Jeff Brown April 18, 2014 at 9:35 am

Thanks so much, David. Too many try to complicate the process. Examining a potential investment through the filter of real value, as a business simplifies that process. Doesn’t make it any easier to find, but simpler.


David Shafer April 18, 2014 at 9:53 am

Yes, the tough part is always locating the investment. Your boots on the ground approach is superior to any I have heard of. Your willingness to look beyond the area you happen to live in is key.


Sharon Tzib April 18, 2014 at 8:40 am

Thank you, Jeff! Those principles are golden!


Adam H April 19, 2014 at 8:21 am

Hi Jeff,

Can you recommend any reading that covers leverage in depth?



Jeff Brown April 19, 2014 at 11:41 am

Hey Adam — I haven’t run across a book that dwelt in depth on leverage, unless it was to promote its use. Graham’s book, The Intelligent Investor speaks of it. The source most productive for me on the subject was CCIM training. It broke it down and defined it correctly. Basically investors need to understand that leverage isn’t primarily about down payment size. It’s ALL about relative return. I’ve written posts here addressing the subject which I’m sure you can find easily.


Adam H April 19, 2014 at 3:27 pm

Jeff, Thanks for the info! The Intelligent Investor is on the top of my reading list.

I think I’ve got my head around it, I am new to a lot of this and am primarily self taught. I’m glad your bring up relative return, the reason I asked about leverage is because I would like to be able to make an ‘apples to apples’ comparison of investments; not just one RE deal against another RE deal, but also RE against other assets/investments.



Chad Carson April 19, 2014 at 9:29 pm

Hey Jeff,
Loved the article. I am also a big fan of taking Buffett and Graham principles and transferring to REI.

– what did you mean by multiple income sources? On one property?
– what did you mean by multiple strategies? Exits? Means of acquiring deals?

Thanks for sharing your time and knowledge.


Jeff Brown April 23, 2014 at 10:42 am

Hey Chad — Sorry for the tardy reply, logistics and all that get in the way sometimes.

By multiple income sources I mean stand alone sources. Income property, discounted notes, and EIULs, are my choices.

Multiple strategies is a much longer conversation. I’d love to talk with you about ‘em sometime as I know you’re a highly experienced investor yourself.


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