By Jim Sheridan.
Special note from Jim:
Before I begin this week’s newsletter, I must say a special thank you for all your kind remarks regarding last week’s newsletter. Natural cures being covered up by drug companies so they can make money from American blood is what that drove me to write my critically-acclaimed, international bestselling thriller, The Pandora Prescription- a fact-based conspiracy thriller centered around the greatest cancer cure cover-up of all time.
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This is obviously something very close to my heart, so I hope you’ll take this opportunity to share this with me- let me know how you like it. And now onto this week’s letter…
“‘Who controls the past,’ ran the Party slogan, ‘controls the future: who controls the present controls the past.’ … It was quite simple. All that was needed was an unending series of victories over your own memory.”
– From ‘1984’ by George Orwell.
“History doesn’t repeat itself, but it does rhyme.”
– Mark Twain.
As Warren Buffet famously said, “Be fearful when people are greedy, and be greedy when people are fearful.” People are mostly fearful of the property market now, but applying Buffet’s advice in real life isn’t as easy as it sounds, is it?
When it comes to financial markets, there’s another axiom that perhaps Buffet should have stated as a caveat to his quote: “But people can be fearful a lot longer than you can stay solvent!” In other words, timing is critical so that you don’t get in too early and ‘catch a falling knife’, or run out of money that your investment is costing you.
The Lazy Secret
I’m always looking for the easiest ways to do stuff. Some people call that being “lazy”.
If that’s true, then here’s a true “lazy” way to success…
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All too often, investors only look at the upside. They should always consider this too though: “What if I’m wrong?”
I said that caveat to myself last week on my way to view a foreclosed property, and I wondered if I was wrong about property being a good investment currently.
Anyway, I parked the car and inspected the foreclosed home. It was in reasonable condition for a foreclosure: just superficial work (and that’s good because if a home is foreclosed, the departing owner, understandably perhaps, sometimes lashes out at the property. And drywall is easy to put a fist through…).
Then I walked onto the rear patio, and something hit me between the eyes…
The home had all the usual remnants of broken dreams, nothing I wasn’t used to, sad though it was. But what I saw on this occasion made me walk back to the car and gather my thoughts.
What I had seen on the patio was an abandoned child’s tricycle. Its merry colors had faded from sun and rain, and I imagined what had happened the day the family had to leave, and I imagined the child on the tricycle crying. Call me soft if you like, but I’m a human being as well as an investor.
(Sidebar: Now, there’s nothing wrong with buying a foreclosed property, the damage has already been done by then and it’s not my fault. If anything, I’m helping matters by getting the housing market moving.)
So why was I so fixated on the abandoned tricycle?
Because I’d just seen a ghost, and a flashback from 20 years earlier crashed into my mind (cue continuation of my early years in sales that I spoke about two weeks ago…)
When I was 20 I left BMW sales as I’d landed a lucrative job as a regional sales manager for an automotive manufacturer. As my role drifted away from front line sales (to teach others to sell), my childhood dream to become an airline pilot caught up with me. So I saved, begged, borrowed, and sold. The training was going to be expensive as I was self-sponsored.
Anyway, I finally got my commercial pilot’s license in 1993, but there was still a bad recession on, so no airline jobs going. It seemed all those BMWs I sold were a side-effect of the boom of the late eighties, and we were now in the subsequent hangover phase (sound familiar?).
And I had NO money. And I really mean none. My pilot training had wiped me out and I had no income at all. I’ve never been so poor in my life, I literally didn’t know where the next meal was coming from. So I contacted an old friend who used to sell cars with me to see if he could get me a job selling for a while. It turned out he was now a realtor (in the UK they’re called ‘estate agents’ and no exam is required), and he got me a job at the branch he was working at.
I wasn’t happy. I was now a trained airline pilot, and here I was back in sales (I’d forgotten how noble a profession sales is!). Not only that, but I was selling something I had no clue about: houses. I would just bide my time and wait for the airlines to start recruiting…
But as it turned out, selling houses was a whole lot easier than selling cars. I didn’t have to know a bunch of product knowledge, I didn’t have to deliver anything, and if the house broke after the sale it wasn’t my problem! There was just one teensy-weensy problem…
Nobody was buying any darn houses!
Being an estate agent (realtor) in 1993, I can tell you, you couldn’t give houses away back then. Moreover, we would sometimes be required to be the first people to enter a foreclosed property after the owner had left. Sometimes the ‘owner’ was still there, sitting in a pile of ashes. I had one man break down in tears in front of me, explaining how his wife had left him and taken the children because of the foreclosure, as he clutched one of his young daughter’s drawings. Poor guy- I’ll never forget his face…
I wasn’t having fun.
And it was on that day, in a freshly foreclosed home on a rainy day in 1993, that I saw an abandoned tricycle, and I imagined the conversation that had surrounded its abandonment. I saw that empty tricycle as a symbol of the low point of despair I felt in the economy then.
It seemed property was doomed forever. Nobody was buying and everybody was saying they never would again. I wanted out.
I would stare into my prospecting diary on my desk and pray that Richard Branson would just walk in and save me by giving me a pilot job for Virgin. But at the other end of our premises there was a lot of activity, and that made me curious…
We may not have been selling any houses, but the rental department was going crazy. Hands were being shaken and jangling keys were palmed over all day long, and the rentals manager was a happy guy.
I asked him how much one-bedroom apartments rented for in Staines (for any ‘Ali G’ fans, yes, my home town is the very same he claims to be from). The rental manager said around 5-600 a month, and that he couldn’t get enough units to rent. It made sense as nobody was buying, and they had to live somewhere. As the rentals manager said, “People will never stop making tricycle motors, will they?” (Think about it).
I asked the mortgage guy how much deposit I would need to buy a one bedroom apartment, and what the monthly payment would be. There was a reasonable profit there of a couple of hundred pounds a month, but the deposit would be three grand.
I didn’t have a penny to invest, but I kept it in mind…
A week later one of the owners of a listed property called me and asked about any viewings. But instead of giving him the usual bad news, I had an idea. I asked if I could go and meet him at the property that night after work. He agreed.
When I met him later, I made my proposition: “Your home is listed at fifty grand, yes?”
“Yes,” he said.
I said, “Well, would you accept forty-seven grand for it?”
“In this market? Of course!” he said.
“Well,” I said, “What if I gave you fifty grand, but you paid my three grand deposit?”
He thought about it for a second, then, as the light went on, he agreed.
A month later I walked into his property as the new owner, and I hadn’t spent a penny. Better still, the bank had given me a cash back bonus, so I was actually up already!
Then the nerves set in: “Will I get a tenant though?” I sweated for all of a week over this, but what would be the worst case when I hadn’t invested any money in it??
Everyone thought I was crazy. Colleagues told me there were many more foreclosures still to hit the market, and that the property market was dead forever.
As the rental manager had promised though, a good tenant moved in a few weeks after closing. I was 23, and a property investor, and feeling pleased with myself. So I did it again. And again.
A year later the economy had started to turn, and I got a flying job for a regional airline. But I had been bitten by the bug. My profession was a pilot, but my business was property. And we all know what happened to property prices after 1993…
Back to present day, 2012 and sunny Florida, I walked back to the patio and stared at that abandoned tricycle again, then muttered to myself, “We’ve been here before. When will we ever learn?”
People have remarkably short memories when it comes to their failures. We bury our failures instead of learning from them. Learn from the Texans and their Alamo. The Alamo was obviously a huge defeat, but what do they do in Texas? They turn it into a monument and a tourist attraction!
That’s what we should all do. Build a monument to our failures in our minds. Learn the lesson they taught you.
And if other people want to rub your defeats in your face, let them. Those people are clearly the ones who think failure is bad, who want to bury failures, and they will pay the price for that mentality.
Understand: The difference between successful people and mediocre people is that successful people do the things that mediocre people don’t want to do. And one of those things is learning to appreciate and remember failure so we don’t lose the lesson it gave us.
My biggest worry today is that politicians are guilty of the same mistake. They don’t know their history. I look around the world today and I see superpowers competing for resources (as they did before World War I), I see rampant money-printing (as Germany did before World War II), I see European friction (that caused BOTH World Wars), I see potential flashpoints like The Gulf and Iran, like alleged incursions by China into Vietnamese waters. And meanwhile I see people planning to vote based purely on the price of gas and perceived job security, instead of the bigger picture.
Or maybe politicians do know their history, but they have to pander to an ignorant electorate? Either way, it’s not good. Learn how to survive and prosper in this environment as soon as possible.
I see history rhyming.
And I see many more abandoned tricycles in our future unless we wake up.
Are you sick and tired of your dollars buying you less and less every single day?
This secret underground network of ‘banks’ might be your solution to quitting the dollar for good.
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