Definition: The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight.
It is hard to believe but I have been investing in real estate for 22 years. Thus far, I am proud of my track record of both investing and also sitting on the sidelines when deals stopped penciling.
As a history major in college, I enjoy viewing past as prologue and don’t mind being viewed by others in the industry as overly cautious. During the boom days of the mid 2000’s, I called myself Chicken Little as I knew the sky would fall.
Today, my tea leaves tell me that we (the world) survived a massive overleveraging of the intertwined financial system. This was done through some fantastic financial engineering by various governmental organizations who simply moved the liabilities from banks to taxpayers all over the globe via opening up their balance sheets (printing money / running deficits). Not to mention savers all over the world who saw interest rates drop below inflation and were encouraged to buy (prop up) assets or face the punishment of losing purchasing power for doing nothing.
What I’m saying is that I believe that the bill for the tech bubble and then the credit bubble (fostered to get us through the dot bomb explosion) never got paid and is hanging over all of our heads. I am convinced that this house of cards will collapse and the balance sheets of last resorts have been used.
While I don’t know where or when the Black Swan will appear, I suspect it will be a sovereign debt / bond crisis in China, Japan, Europe or the US and will spread quickly around the globe.
Unlike the last bubble period when I found comfort on the sidelines and keeping my cash, I believe my money is safer in hard assets which provide yield. This is because I don’t know any currency around the world which is tied to anything but investor confidence in that country’s ability and willingness to pay its debt. So instead of overleveraged fiat currencies, I continue to favor the following: Distressed real estate in Southern California, Las Vegas, prime areas of Atlanta, Austin and farms in Southern Georgia. I have a few properties in escrow in Southern California but am not sharing any details since I’m working through the due diligence and will be retrading on the price. I also put a distressed medical office building in Las Vegas under contract but again, it is far from a lock that I’ll make that purchase. I share these to let you know that I am ready to put my money where my mouth (or pen) is and am actively pursuing that next smart deal even if I come home with nothing in my nets for many months or years.
Overseas, Berlin and Shanghai proved to be smart purchases in the past so I plan on investigating potential opportunities in Southern Europe over the summer. We’ll see if distressed real estate in the most fun places across the Atlantic looks interesting.
Another area of interest is marijuana. I see the legalization of that green leafy plant to be a when and not an if and it will eventually happen nationwide. The significance is that it is a multi-billion dollar industry which is largely being run underground. Legalizing and legitimizing the industry will open up a massive opportunity for entrepreneurs everywhere. Like I did when I investigated farm land opportunities in Georgia (consulting with farmers and agriculture professors), I plan on doing the same regarding land in Northern California because it is in my backyard and there is a long history of cultivation in that region. Again, this may all lead to nothing but I’ll be reporting back my findings.
Too often I hear people lament that the best opportunities to invest in anything were in the past. While hindsight is indeed 20/20 much like knowing yesterday’s lottery numbers, people will look back at today with the same nostalgia.