All Forum Posts by: Account Closed

To answer your second question about remote investing - I think that has in fact happened somewhat over the last 10 years or so. I hold property in Oklahoma but I live in Los Angeles. We branched out of California over a decade ago looking for safety from California's crazy up and down swings and also higher yield - and I found, like you, that some places/states seemed to have much much higher cap rates (higher cash flow) than others.

A decade later apartments have become really hot investments (ie everybody wants one) and prices are at historic highs everywhere. In addition the "spread" of yield between Oklahoma and California has decreased. In other words if you sell a building in California and buy in Oklahoma you are not going to get as juicy a bump in cash flow as you used to. I think the reason is precisely one you mentioned - people are far more comfortable with the internet than they used to be and more people than before are looking everywhere for yield.

If you can find an apartment complex which makes sense financially I say buy it. Over the long run you are likely to make a lot of money. One big advantage is the fact that you can't easily sell once you've bought - protecting yourself from the tendency to sell in a panic when things go in the toilet. With apartments you are in for the long haul and that is almost always a good thing for your investment returns.

Hi Jeff,

That's a great theoretical question, and one I used to ask myself when I was 15 years younger and fresh out of undergrad with "efficient market theory" "optimal capital structure" "modern portfolio theory" "increased returns are correlated with increased risk" and other articles of faith that had been passed off as fact by the professors in the economics department at my very prestigious college.

A decade and half later I no longer buy into the idea that markets are efficient - neither stock markets, nor real estate.

There is a deep divide between people who buy the theory and those who don't. For one of the most cogent arguments for the idea that "value" investing is real and produces superior returns over the long run read the billionaire Seth Klarman's legendary book "Margin of Safety."

To be really short I don't believe markets are efficient because I don't think the theory takes into account human psychology - herd mentality, panic and greed.

A value investor believes that a high price for an investment doesn't mean it's 

Also, if you believe in value investing you do *NOT* believe that higher returns are found by taking on higher risk. You throw the theory of beta out the window (if beta is even measurable).

A value investor believes that buying an asset or stock at a low price gives a "margin of safety" - because you didn't pay so much that the item risks going down even further in price. And if you buy at a price at which you can make a decent return off cash flow and principal paydown alone, then someday you are likely to see above-market returns when the asset eventually appreciates after the market discovers what it is really worth.

But to specifically answer your question with regards to commercial real estate - you can throw aside the theoretical arguments about whether stock markets are efficient. Because even if liquid markets for securities could be efficient (which I do not think they are), that does not mean that real estate necessarily would be as well.

Commercial real estate is not a commodity item with perfect substitutes. In other words, one share of IBM stock is the same as any other share. The price will be identical in the same market at the same time.

But Apartment Complex A is not really the same as Apartment Complex B. They may be very, very similar but they aren't identical.

They could have structural differences, more wear and tear on one vs the other, aspects of the location of one that are superior to the other yet which do not become apparent until much study.

Then of course there is the fact that since they are not identical substitutes - individuals can price them wherever they darn wish and see if someone comes along willing to pay the price. So you end up with asking prices all over the board, a long purchase process and much negotiation along the way.

A big headache compared to buying a share of IBM? You betcha! But that's where the opportunity comes in - if you are willing to go through the headaches you are likely over the long run to have good returns.

Actually I would add that on the Modern Portfolio Theory issue, to really understand the way in which it can be undermined one should read the philosopher David Hume and the philosopher of science Karl Popper - or at least google the term "the problem of induction."

Oops I guess I didn't insert that link correctly - here it is again: Classes I found helpful

Thank you all for your replies - really appreciated it. I started to write our story and then realized maybe I should break it up into a few posts. So - for whatever it's worth, here's the first one. More tomorrow.

https://www.biggerpockets.com/forums/12/topics/241656-i-am-the-rich-guy-you-want-to-be---part-2---classes-to-take

I'm writing this post as a follow-up to a post I made over on the investor psychology forum about the downside, isolation and anxiety resulting from achieving wealth - and I was really grateful to see an outpouring of support and great advice (rather than insults, which I was anticipating).

I said I'd write another post with the story of how I and my family got to a substantial net worth (by mom and pop standards) over the years. As I started to type it out I realized that it might be better in a few posts, not just one. So I'll break it into three - classes I recommend, books I like, and the actual story of my family (which I'll save for last).

So - here I'd like to share what experiences have been useful to me in investing over the years. If you read the first post (linked above) this one will make more sense.

Here then - is the first one - classes to take. I will note that my grandmother, who started it all, only had an associates degree as an RN - never any formal training or education in business, finance or economics. My parent built on my grandmother's success and also never had any formal economics or finance training - dad was a theology major, mom was English lit. They both became physicians and mom also went to law school.

I studied philosophy in college and stumbled accidentally into an economics class. I discovered I liked it. So I took another, and another, then another until I had a minor in the subject. These classes turned out to be quite helpful for our long term strategy and keeping us grounded and "staying the course" through the years. So - take this for what you will. If you can find time to take one night or weekend college class at a time until you have these five under your belt I think you will agree that they will help your long term vision and understanding of investing. I view them all as having insights indispensable to knowledgeable investing.

Without further ado:

College Courses to Take

There are five college classes I would advise any investor to take - in no particular order, even if you do not have a degree or ever intend to get one. You can take classes almost for free down at your community college, online or in person or at your local state university. Many universities (like the UC system’s “concurent enrollment” in California) will let you take classes for credit without even applying for admission.

I personally do not think that just reading a book is the same value as taking a university course because when you take a class you will be forced to really study the material, grapple with it, work with it on exams and projects, etc.

Economics 101 - macro or micro. You don’t need to be an economist to be a successful investor, but a grounding in the fundamental theory of “the dismal science” will forever open your eyes to a different and useful way of thinking about the world. Supply and demand, limited resources, utility, opportunity cost, behavior at the margin and other concepts.

Money, banking and credit - Again this an economics course which goes by different titles but it is enormously useful.

Corporate finance - This type of class has different names but is offered at most universities. A semester course will give you an understanding of some very important concepts such as discounted cash flows, the time value of money, expected value, Miller Modigliani and their famous theory of capital structure, modern portfolio theory, the concept of alpha, etc. You do not have to become a believer in modern portfolio theory (I am not) but you are not educated if you don’t know it exists and how influential it has become - its tenets (not tenants) literally percolate through much of what you see written in the popular press about investing, retirement strategies, diversification, etc.

Statistics - A one semester or one quarter course in statistics will serve you very well all your life, and open your eyes to a deeper understanding of probability and risk.

Accounting - You really do need to have a conceptual understanding of what balance sheets, cash flow statements and profit and loss means. Now I am a hypocrite - this is the one course on the list I haven’t taken but I intend to finally get around to it this winter.

Philosophy 101 - Okay I’m biased - I was a philosophy major. A basic semester’s grounding in symbolic logic, epistemology (the study of how we know what we know), theories of causation and metaphysics will help you to get suitably skeptical the next time some financial planner claims to be able to help you predict the future (for a fee of course).

Next time - the books I like. Finally, my family's story.

Good morning. Thanks for your advice and feedback - I think I'm going to make a separate thread telling our investing story, so as to separate the topic from this "psychology" thread. Then I'll link to it from here for those who want to read it.

The cash is there for the moment because we closed on the sale of a number of units less than 90 days ago. With the markets in the state they are in right now, and with multifamily at the prices it is in, I see no problem with holding cash for a few months while I ponder the next move.

"Hide" was probably too strong a word. "Non disclosure" is probably a better word. She obviously knows I spend my time doing real estate when I'm not skiing. And we have been together two years - she knows by now that my family invests in apartments and I'm the one who runs it and a share of it belongs to me. But she doesn't ask "how much" and I've never told her. Perhaps I should have - I hope she doesn't think I'm a centi-millionaire and is in for a rude surprise lol.

She was reared in a poor family, put herself through grad school, and her ex was a poor grad student like herself. When I met her I attempted to bond over philosophy (her profession, my major) and mutual social connections - and not let her realize that I have real assets for as long as I possibly could.

I must admit I took some evil pleasure in "corrupting" a woman who was practically a communist feminazi professor when I met her - and making her annoyed at herself when she realized that she was just as vulnerable to enjoying a few material pleasures (good wine, nice hotels, skiing, riding in my MBZ instead of her Hyundai) as any other human.

I don't see her telling me I should sell our family's ski condo and donate the money to charity! Heh. But I digress. . .

Book ordered - thanks! Yes I was expecting to be ripped apart but great advice here, great people.