Contrarian

One of the reasons I think I gravitate towards finances and investing is because I continually find parallels between them and my previous career as a pitcher. One concept that I'm particularly drawn towards is contrarianism, which on a very basic level, basically just means doing the opposite of everyone else. But I think there are a few different ways this can be applied in practice.

One of the things that I wish I had picked up on earlier in my career was the ability to slow down when things were speeding up and vice versa. As it relates to a single at bat, in big situations it's very easy to lose control of your thoughts and your ability to focus on what's important: the current moment. Yesterday's game, tomorrow's game, the noise in the stadium, or any number of things can sidetrack you which typically ends up with things not going your way.

But it's also important to have a sense of the bigger picture. When I think back on some of my best and worst outings, there's one thing that always sticks out to me. Some of my best games were ones in which there was a really sluggish atmosphere. It could have been because of the weather, or the fans that day, or a bad travel day, but it didn't really matter why. Everyone else was moving slow, and I always liked to work fast when I was pitching.

Conversely, some of my worst games weren't necessarily high pressure games, but there was just a higher energy in the stadium that day. It could have been because the first two hitters had some good at bats and got everybody excited to hit. I found the old saying "hitting is contagious" to be pretty accurate. Looking back, I think I had a particularly hard time combatting those days because it was difficult for me to slow down when everyone else was speeding up.

I think the idea of doing the opposite of everyone else has held up very well over the years as it relates to investing and real estate. The best time to buy is when everyone is scared and selling, and the best time to sell is when everyone is confident and buying. It's an area outside of my expertise, but I would venture to guess that right now is a great time to be buying retail and hospitality buildings due to the pandemic.

In the multifamily space, by far the most popular type of deal we see people chasing are the value-add and deep value-add deals. Since these business plans take on more risk by virtue of the short term debt required to finance them and revenue increases needed to execute the business plan, higher returns should be demanded. However when everyone is chasing those deals, it tends to push the prices further up, which puts downward pressure on the return while the risk remains the same, thereby increasing the chance of a poor investment or even a loss.

Conversely, we are currently seeing stabilized, cash-flowing deals having less competition because they don't have the big shiny high teens returns that the value-add deals have. Since there aren't as many buyers bidding these deals up, prices on them seem to be more commensurate with their risk profile. For that reason, I believe taking a good hard look at these stabilized deals is the perfect way to slow down while everyone else is speeding up.