Shift Happens

Shift Happens

Shift Happens

In my nearly 30-year investment career I have found that it is a more logical flow to go from micro to macro. What I mean is that there is no substitute for experience to help formulate a set of theories and overall investment philosophy versus the other way around. It may sound good on paper to read what others have written and postulated and from these wise teachings form a prism through which to make key decisions, but my experience is that it just doesn’t work that way. It’s only by attending the school of hard knocks and seeing how decisions that were made turned out differently than expected (both positive and negative) and being faced with in the moment uncertainty while contending with powerful emotions of fear and greed, that I can see what has worked and what hasn’t worked. There’s no guarantee that I will apply these experiences in successful ways in the future, but I do believe the odds are much better having had those experiences than making decisions in their absence.

Arthur Schopenhauer, one of my intellectual heroes that is featured prominently in my book, said that the first 40 years of life provides the text while the next 30 provides the commentary. The reason why the commentary can’t come until much later is because it is only when we get close to the summit of the mountain that we have the perspective to turn around and look down and see the path that got us there. From this vantage point we can bubble to the surface the unconscious connections that tied the major decisions of our life together that weave together and form a narrative of our journey. This is one of the reasons why I wanted to write my book. I wanted to take some time and reflect on what has been a really special and wonderful journey and see if there were any unifying principles that could explain much of the twists and turns of my life.

So what did I come up with?

One of the most important ones was:

Shift Happens

And when I speak of shift, I mean tectonic shifts. These are those powerful forces that can build up over time or manifest themselves in an instant (much more rare) that can alter the trajectory of one’s life, a business, or industry. They are not always negative. Some can be quite positive and offer great rewards. The key, however, is to be prepared for them. While they are statistically improbable, they are virtually inevitable. If we are fortunate enough to anticipate them and take the appropriate action to avoid catastrophic risk or capitalize on life changing opportunity then we have been able to monetize tectonic shifts in ways that can dramatically improve our financial, mental, physical well being as well as create and strengthen meaningful relationships. Conversely, if we are not prepared for them then they can monetize us by causing great harm to each of those important aspects of our lives, especially if we choose to not learn from what happened and try to gain vital experience from them.

From a personal standpoint, a tectonic shift in my life was when my son suffered a massive stroke at the age of two due to a rare reaction to the chickenpox. Our lives, and of course, his the most, were changed forever. Yet, despite it all, we have learned a great deal about the human spirit, how kind people are during times of distress, how to advocate for oneself in the byzantine medical world, never to count someone out, and that love truly can conquer many deficits in life. The book has a chapter dedicated to this, but this was clearly a major tectonic shift in our life that still has some aftershocks that continue to reverberate.

From a business perspective, the collapse in single-family housing and subsequent extraordinary growth in rental household formations was another tectonic shift.  The unsound, often times fraudulent mortgages created during the housing boom poisoned the world with very bad investments. When investors began to realize that what they owned was in no way what they paid for and thought it was worth, the financial edifice became very unsound. The result was the near global meltdown in 2008 and early 2009 and the collapse in the single-family housing market due to lenders shutting off the spigot for home mortgages except for the most pristine borrowers. This was a tectonic shift that for the well prepared could offer enormous financial rewards, particularly those with access to capital and the ability to source and manage rental housing opportunities.

CWS, while not immune from issues we had to deal with during the downturn, was still strong enough to be able to field a team to go on offense and access capital to take advantage of this once in a generation opportunity. Since 2011 we have purchased 39 properties and built or broken ground on seven others, refinanced hundreds of millions of debt to dramatically lower our debt service, and grown our portfolio to in excess of $3 billion in value while generating very compelling returns to our investors. I would classify this as CWS having done a good job of anticipating a tectonic shift and taking aggressive action to monetize it over the last four years.

Over to you:

As I said tectonic shifts happen. They are those powerful forces that can build up over time or manifest themselves in an instant (much more rare) that can alter the trajectory of one’s life, a business, or industry. They are not always negative. Some can be quite positive and offer great rewards. The key, however, is to be prepared for them. Are you prepared for when shift happens to you or your business?

 

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