Remember the Oscar Wilde play, “The Importance of Being Earnest”? Well, I’d like to blog today about “The Importance of Being NIMBLE.”
The turmoil in the markets and the contraction in the global economy reminds each of us of the old cliche: “the only thing that’s constant is change.” So it is in business and, especially, investing.
My business partner and I founded our investing company with one very simple idea in mind: we wanted our business to outlive us. We want it to be around long after we’re gone. So all of the major decisions we make are colored by a long term perspective. What’s best long term for Live Oak? What’s best for our investors? How do we ensure that the projects we’re developing are benefiting the long term success of Live Oak (not just the next five plus years, but over the next decade and beyond) and have our investors benefit in much of the same way.
For example, our private equity company has only invested in commercial real estate to date. However, we are now expanding that. We are now investing in businesses and the passive cash flows they produce. Our criteria: the businesses must have a very high rate of return (20%+ per annum), are likely to be wildly successful even in down economies, and the management teams behind those businesses must also have a long term vision for their companies.
So our latest project, for example, is investing in a business that develops multi group dental centers and manages the practices within those centers, across the US. Dentistry is a high cash collection business, 99% of all new dental centers succeed (i.e. remain open and thrive beyond the five year start up phase), and for every 6,000 dentists retiring this year only 4,200 are coming out of dental school. So, we think this is a great play (it doesn’t hurt that the returns are phenomenal). And 65% of all Americans visited a dentist last year – up 10% from just 10 years ago (and as the population ages, particularly the baby boomers, that percentage is more likely to go up than down). Yes, there is a real estate component to it (the centers are stand alone office buildings after all) but the investment is really in the business of the dental practices (the returns are higher there than in the real estate actually). It’s an opportunity to get in on the inside of a deal which should produce a high amount of stable cash flows for many years — our investors will be able to invest in these very lucrative medical practices which are not usually open to private investors very often because of the hard work we’ve done and the nimbleness we’ve shown.
We’ve spent over 6 months of due diligence on the project (and, more importantly, all the players involved) so we took our time. But, if we were not nimble and remained closed to investing in only commercial real estate, we would not have this opportunity open up for us. The opportunity opened up for us because of some key relationships we’ve cultivated over many years — again, another thing we take a ‘long term, take your time’ view on (relationship building, that is).
Now, instead of waiting on the economy to come back around before we start seeing some great commercial real estate deals again, etc, we can monetize our nimbleness and continue to provide great opportunities for our investors who have to put their money somewhere while the options of where to place that capital are getting more and more limited by the day (stock market? CDs?). They say: “why NOT throw some capital at a private placement deal with a reputable firm and a strong offering?” Even in the worst case, it can’t be worse than losing 40% of my assets in the stock market! If you’re sitting on $1M+, why not throw 10-20% of that into this deal (as an overall percentage of your portfolio that’s not much risk exposure … and the upside could be enormous).
So, for us, this opportunity will open up other opportunities (for us and our investors). And it’s not the only opportunity. There are still commercial real estate deals and other private placement opportunities to look at. The point here is that all we, at Live Oak, care about is developing great opportunities for our investors and ourselves so that we both can benefit from them for many many years to come (although the dental centers, for example, will stop being developed in 2-3 years, the centers will still be kicking out returns for decades to come most likely or there might be even more lucrative exit strategies sooner to be looked at).
So, I encourage you to keep your eyes open and remain nimble not just during these rough times, but through all times.
I know that we will continue to make that a mantra for ourselves.
In closing, one of my favorite market commentators, John Mauldin, has a newsletter entitled: “The Frontline”. I highly suggest you subscribe to it at http ://www.frontlinethoughts.com/gateway.asp. In last week’s newsletter entitled “The Problem With Deleveraging” he gave a great history lesson on recessions and it was all pretty discouraging, negative stuff. But he concluded by saying:
“All is not gloom and doom. The last major recession and problem period, in the ’70s, saw a number of new businesses start and prosper (Microsoft, Apple, Intel, etc.). Businesses that have access to capital are going to be able to take market share and come out of this recession in much better shape. It is just a recession, after all, and will end. But I would suggest keeping your powder dry and being nimble. There are opportunities which will arise, as they do in every downturn. Just don’t expect this recession to be like any past recession. Make your plans accordingly.”
Who knows. You may be sitting on a business right now that could be the next Microsoft, Apple, Intel, etc. If you have a long term, deeply compelling vision with a business model that can stay nimble while you keep your eyes wide open to the opportunities that are all around you right now, you may be able to generate a wealth of abundance for not just yourself and your loved ones but for generations to come. Maybe even become one of those businesses John Mauldin will write about.
Photo Credit: Mayr
This material is neither an offer to sell nor the solicitation to purchase any security. The information is for discussion and information purposes only. It is not intended to replace competent legal, tax or financial planning advice. This information is provided from sources believed to be reliable but should be used in conjunction with professional advice that is consistent with your personal situation.