The Investor Who Never Chased Every Deal

[Drago Stanimirovic]

I know an investor who looked at more than sixty properties before he finally bought one.

Sixty.

To some people, that sounds like patience. To others, it sounds like a man who can't make a decision.

The property he eventually bought became one of his best-performing investments. But I don't think the lesson is simply "Be patient". Because patience can cost you money too.

There's an idea from Daniel Kahneman's work that I find useful here: we basically have two ways of thinking. There's the fast, intuitive kind. And there's the slow, deliberate kind where we actually sit down, calculate, compare, question assumptions and try to make the best decision possible.

The slow version should theoretically give you the better answer. There's just one problem: "Ain't nobody got time for that." Certainly not for every property that comes across your desk.

Imagine doing complete due diligence on every possible deal before deciding whether you're interested. Comps. Contractors. Financing. Insurance. Permits. Rent analysis. Exit scenarios. Worst-case projections. Another contractor. Another comp. By the time you've finally established that Deal #17 is excellent, somebody else closed on it last Tuesday.

That's the other side of patience that doesn't get discussed enough. The best deals don't necessarily wait for the most careful investor. Sometimes they go to the guy who understood enough, quickly enough, to take the risk. And yes, that's a risk.

Fast thinking is imperfect. You'll occasionally reject something that might have worked. Worse, occasionally you'll say yes to something that shouldn't have survived the first pass. But the alternative - running the complete "slow algorithm" on everything - isn't realistic either.

So maybe the skill isn't analyzing every opportunity perfectly. Maybe it's getting very good at deciding which opportunities deserve serious analysis.

First pass: No. No. Absolutely not. Maybe. No. Interesting.

Now slow down. Run the numbers. Challenge the assumptions. Talk to the contractor. Check the financing. Look for what you've missed. Try to kill the deal.

That's a very different kind of patience. If you've looked at sixty properties and rejected fifty-five of them in fifteen minutes, you haven't necessarily been careless. You may have learned enough to recognize fifty-five versions of something you've already seen before. And if you seriously investigated the remaining five before buying one, that's where the slow thinking earned its keep.

But there's still a point where you have to stop thinking. That's the part I believe people sometimes forget. Another investor is looking at the same property. The seller isn't waiting for you to achieve philosophical certainty. Markets move. Contractors get booked. Financing changes. Somebody makes an offer. Eventually, the information you don't have becomes something you simply have to risk being wrong about.

That's investing.

So the investor who looked at sixty properties wasn't successful because he said no sixty times. And he wasn't successful because he analyzed everything to death. He was successful because he knew how to say "no" quickly, when to start thinking slowly - and when to stop thinking and say "yes".

That's a much harder skill than patience. You don't need to fully analyze every deal. You need to get good enough at the first pass to know which deals deserve the second.

And when one survives the second pass? Don't start looking for a third, fourth and fifth just because you're afraid of being wrong. Somebody else may already be writing the offer.

(How much do you need to know before you're comfortable risking what you don't?)