Musings on Buying Businesses and Real Estate

I've been an official business owner for about 2 years now and, wow!, have I learned a ton.  My plan had been to buy businesses passively and let good managers run them well.  Sometimes this seems to work and sometimes I find myself more involved than I ever imagined.  I came up with this concept of buying businesses through my never ending study of Warren Buffett and his strategies in conjunction with a little research into private equity.  I mean, those guys make a ton, so why can't I do the same, starting on a smaller scale??? 

I'm a 42.5% owner in a moving and storage business, a 50% owner in a mixed use commercial/residential property, and a 51% owner of a chocolate company in Nashville.  I still believe this is the way to wealth, along with some solid investments in public companies along the way.  My thoughts are, if these businesses can start kicking off excessive cash, that cash can either be reinvested back into the company if high return opportunities exist or the cash can be withdrawn and invested into public companies at decent rates of return.  Over time, I would imagine this strategy would work out profitably.

So here are some musings on what I've learned so far:

I'm not a big fan of real estate.  It's just a different game and seems to be a constant struggle to find good tenants.  This, in my mind, defeats the purpose of passively investing in it.  You can hire a company to manage the property, and they take 7% or more of your monthly income, which eats pretty quickly into your investment.  Over time, real estate appears to under perform the stock market anyway.  There's a game here where you can make a ton of money (just ask our POTUS!), but it's not for me.  I don't enjoy it and it lacks excitement.  And, most of all, I can imagine going into old age getting bored and tired of the same old.

I've also learned debt isn't always terrible, but it is usually bad.  We've taken out a number of loans to keep our businesses afloat, including when purchasing the businesses.  These loans handicap the businesses and the individuals involved.  I agree, not all debt is bad, but if possible to pay cash, I'd highly recommend it.  There's good debt and bad debt, as we all know, and we've taken out both.  If you can borrow money at 6% and invest it at 20%, you've got a pretty good deal on your hands.  But if things turn, you're still stuck paying this 6%, while possibly not being able to invest that money at a higher rate.  In fact, you may be put in a scenario where you're forced to take out money at 20%-30% just to stay afloat.  Good luck investing that profitably . . . but sometimes you've gotta do what you gotta do.  If you can use cash and invest at that 20%, you're in good shape. 

Also, I agree with Buffett (as usual) that good managers make the business.  We've got an outstanding manager, who holds ownership, in the chocolate company.  I've never met anyone who works as hard as she does and we simply lucked upon her.  The company would be dead in the water if we didn't have the right person in charge.  We've got a really hard worker and driven operator at the moving and storage business.  He is a straight shooter and is decisive and I like him, as well.  We knew him prior, but we still were lucky to convince him to run the operation.

On that note, I think more and more that it is important to surround yourself with people who make you better and leave less and less time for those who don't.  I find that some people are fun, but I leave hanging out with them disappointed and unfulfilled.  You don't gain anything from the time spent.  Others, you want to keep talking with all night because you can almost feel yourself growing intellectually.  You leave inspired.  I think one of the goals in life is to make more time for those people.  I'm not saying that you shouldn't hang out with the fun crowd every now and then to blow off steam, but I think you need to prioritize who you choose to spend your time with.

Those are the big generalizations at the moment.  For me, if these investments don't pan out and I have to go back to the dreaded corporate world, I'll surely be disappointed but I'll be glad I tried something different that I truly enjoy. 

Instant Gratification in Poker and Investing

Poker and investing are similar activities.  Each a game of skill, where the end result doesn't necessarily reflect how well the game was played in the short term, but long term results are heavily influenced by constantly playing hands that offer positive expected value.  In the short term, randomness plays an important and unavoidable role; in the long term, those vagaries flesh themselves out.

Poker player, value investor, and Seeking Alpha contributor, Bram de Haas participated in a brief Seeking Alpha Q&A session that highlighted many of the similarities.  de Haas discusses that "one difference is that a hand of poker is settled in a matter of minutes or seconds . . . " while an investment can take years to come to fruition.  Timeframe is a factor that needs to be considered with the investor that the poker shark can ignore.  He further notes that he is less prone to judge his investments by their outcome as opposed to analyzing his application of value investment theories in reaching an investment decision.  His goal, it seems, is mastery of the approach; the results will take care of themselves.  His methods may need some tweaking every now and again, but he won't change course on a whim.  Lessons derived from the RESULTS of an individual poker hand or an investment are meaningless. 

Why Knowing it All Makes you Dumber . . .

A difference exists between confidence and arrogance - between being well-informed and believing you have all the answers.  Why are we so reluctant to say, "I don't know"?  Or, "I'll have to check on that"?  Instead, when pushed into a corner or pressed for more information, we succumb to a recency bias and blurt out anything we can recall on the topic at hand.  Regardless of whether the information we are spouting is correct or not - we only say it because it is the most easily accessible information our brain can provide at the moment - we feel the need to sound informed.  Or, more likely, we have a fear of being regarded as uninformed or, worse yet, unprepared. 

Volunteering the most recent information that comes to mind may get us out of a temporary pickle, but it will catch up eventually.  The problem is, once something comes out of our mouth, we own it; we tend to believe and defend it even more than before the statement was made.  The vicious cycle continues with confirmation bias, where we now begin to search only for information that supports our position, building additional mental support for a stance that we were once not really sure we even agreed with.

"Waiting for the Universe to Respond to What You've Been Manifesting"

Over the weekend, I stumbled upon this picture on Instagram:

 

 

It was so ridiculous and pointless - just like most brain-drain social media posts, I suppose - but it was also one of those images that became stuck in my head.  How often do you feel like this?  I mean, REALLY feel like this?  I've felt this way more lately than I can ever remember - and it's tough.  Anxiety has got to be one of the most difficult emotions to suppress.  If you're like me - and I'm assuming if you're reading this then we likely share number of similar characteristics - it is not in your nature to sit back and watch the world go by.  You need to be doing something; you need to be planting some seed or nurturing one that you've previously sown.  Sitting and watching is next to impossible. 

Investing in Others' Dreams

I recently have had the opportunity to invest in a small startup restaurant in my home town, the owner being a high school friend/acquaintance from years ago.  He is only looking for a little startup capital - rent and labor in our town is so cheap; the downtown building he wants to lease/purchase will cost something like $700/month and it is in the heart of our town of 20,000 people.  Our downtown used to be more vibrant.  Or, at least, that's how I remember it growing up.  We have an old courthouse in the center of town that gives the town character and a welcoming feel, our Fourth of July parade is packed every year, we have nice clean lakes that are great for boating and fishing, and the downtown area has potential if the right people were involved.  The compassionate, nostalgic part of me wants to give him his money and hope he succeeds.  The logical, business side of me says, "Restaurants fail.  Bad investment" - even if it is a relatively small sum.

Entity and Incremental Learning

From Business Insider

I've been on a bit of a psychological kick lately digging into books like "Bounce" and "Thinking Fast and Slow" - which is quickly becoming one of my favorites and, by far, one of the most informative I've ever come across.  "Bounce" mentions some of the work of Carol Dweck, who was the author of "Mindset", which contains some mind blowing information on how our minds work and how we can condition them to focus on success.

While her book was a great read, I had forgotten - or, more likely, didn't yet understand - how enlightening her concepts really were.  That was until a couple of months ago.  Not only did her writing continue to pop up in a number of books I had been reading, but my son was born.  After seeing how fast little babies pick up new habits and how quickly they learn, I began to think about the best way to raise him from a psychological standpoint to empower him to live the best life he possibly can.  I remembered Dweck and gave myself a refresher of her teachings, which took on an entirely different meaning than the first time I plowed through "Mindset". 

One of the tenets of "Mindset" was the distinction between entity and incremental learning.  Entity learning was the belief that brainpower and intelligence were innate and could not be improved.  It gave the individual a sense of entitlement.  On the opposite end of the spectrum was incremental learning:  the belief that "the novice can become the master" (quoted from "The Art of Learning").  Empowering! 

Trips Over Gifts

My wife and I have an agreement:  If at all possible, we don't buy each other gifts for birthdays or holidays, but instead use that money towards experiences.  This agreement forces us to use our imaginations to come up with something fun to do for special occasions and compels us to step outside of our comfort zones to try new adventures.  I'm not saying we haven't ever bought each other something, but the idea is that an experience, if at all possible, takes precedence over material goods.  And they don't have to be huge, expensive experiences - just something thoughtful.  A nice night downtown or a   A few of my favorites have been:

-Hot air balloon ride in Asheville, NC. 
-Great American Beer Fest in Denver and offseason stay in Vail
-Deep Sea Fishing in San Diego

Each of these coincided with a trip that we already had planned.  With sites like Groupon and LivingSocial, these types of experiences can fit within a budget.  I'm not going to try to tell you that they are cheap, because they aren't, but they also don't need to break the bank.  There are many activities that can be enjoyed for much less than a gift would ever cost. 

Review: "Getting There" - Gillian Zoe Segal

"Getting There" may be my favorite book of 2015.  Gillian Zoe Segal does a fantastic job compiling anecdotal stories of successful people from all walks of life.  The book is structured such that each story is approximately 2-4 pages long, with some biographical information on the subject.  Each section concludes with lessons, or "pearls", as Segal puts it, that the subject has picked up throughout their journey.  Segal's background as a photographer is obvious with a beautiful portrait of each subject at the beginning of the respective chapter.  The book in itself is a piece of art. 

Her compilation spans the globe and covers subjects from all ends of the spectrum, from Wendy Kopp, founder of Teach for America, to Laird Hamilton, big wave surfer; from Nitin Nohria, Harvard Business School Dean, to Michael Bloomberg, former New York Mayor and founder of Bloomberg L.P.; and from investor Warren Buffett to Sam Adams brewer/founder, Jim Koch.  Anderson Cooper shares his journey in journalism and discusses the sacrifices he made along the way to becoming a CNN news anchor and host of his own show.  John Paul Dejoria discusses surviving off of 99 cent chips and chicken wings and a trucker's special breakfast, while living in his car and hustling his hair products.

Beer Economics: To Brew or not to Brew . . .

We all have our "thing".  The "thing" . . . you know, the one that you, savor extraordinaire, just won't budge on.  It goes against every principle you try to uphold on a daily basis.  It's material, it's expensive, it's unnecessary, but it's sooooooo good!  Maybe it's coffee?  No, you would never frequent Starbucks each morning for a $5 Pumpkin Spice Latte with your name spelled incorrectly down the side - that would be asinine.  But there are still ways to get your fix, to feed that craving, and conquer that one weakness for a reasonable price.  Maybe when you're at the grocery store staring at that wall of Folgers and Maxwell House, maybe you can't help yourself but reach for a bag of Peet's for only $1 more per bag, or 15 cents more per pot.

Mine?  Mine is craft beer.  My dad had been brewing beer long before it was hip.  I sidestepped the Icehouse college phase.  I never "moved up" to the expensive Coors Light.  Nope, my first "bad" beer was Sam Adam's.  At that point, I was doomed.  It's a one way track.  A guy can move from Iowa to California and he'll understand what he had been missing, but you can't expect a Californian to relocate from San Diego to Des Moines and survive.  It's a step backwards, in his eyes.  After my dad's craft beer, there was no turning back. 

But craft beer exploded.  Now, a six pack of Lagunitas Little Sumpin' Extra ale will set you back $9.99, if you're lucky, and that's before taxes.  You want to buy Ballast Point Sculpin in Chicago?  How about $13 minimum?!

Personal Goals - Ultimate, Tangible, and Intangible

My Goals:

SUCCESS = FREEDOM

1)  No regrets
2)  Maximize time with family and ensure happiness
3)  Financial Freedom by 1/1/2020
4)  Relocate family and purchase home in Chicago area.  Accomplished 3/31/2015
5)  Purchase/Open Business
6)  Travel as much as possible

*Doing all of this with integrity in a way that would make God proud and with the end result of leaving this world a better place than when I entered it.

As you can see, some of these are more tangible than others.  No regrets?  Maximize time with family?  It is difficult to quantify whether or not these are accomplished.  I'll tell you that I KNOW when I'm NOT spending enough time with family, but how do you really know if you have maximized it? 

Overcoming Weakness

How can you expect to improve in your area of expertise, your chosen field, or as a person in general by focusing solely on your strengths?  Everyone has a weakness; what differentiates those who succeed from those who do not is how those weaknesses are dealt with. 

In "The Art of Learning", Josh Waitzkin discusses the necessity to identify your weaknesses and work on improving them until they no longer hold you back.  In case you are not aware, Josh is the subject of the book and movie "Searching for Bobby Fischer". 

The Power of Silence

-"Brevity is the soul of wit.  If you've got something to say, say it and stop talking.  If you don't have anything to say, you're doing yourself and others a favor by keeping quiet.  If you can't make a contribution, don't slow down the people who can."  -Craig Newmark, Craigslist Founder, "Getting There"

Listen more, talk less.  Try it.  As with any exercise in discipline, it is difficult at first, becomes easier with practice, and, once accomplished, is EXTREMELY empowering and fulfilling.  So many people feel they have to make a statement about all topics that come up in casual conversation.  Why? 

What it boils down to is protection of ego. 

8 Minor Adjustments to Maximize Productivity Towards Your Ultimate Goal

I don't think an entire blog needs to be dedicated to changing your daily life.  I think you can get the point across in a single post or two.  Once you have a handle on it, you should be able to assess your own life and optimize your actions - no further blog reading or research necessary on how to maximize the time in your day.  So . . .

Each morning offers the opportunity to start fresh . . . a new beginning, a clean slate.  Many people wake up and immediately begin to stress and dread about what they have to do that day.  That mentality sets the stage for an unorganized, unproductive day.  Others use the morning to plan out tasks they intend to accomplish that day to help them reach their ultimate goal.  That small difference can have an extraordinary compounding effect and create a drastic advantage for that person over others.  For a quick analysis of how little changes can make a big difference, check out a previous post comparing Al and Joe and the differences in their routines.

Making slight adjustments each day can create the foundation for a healthier, more productive life, set you up to ultimately achieve your goal, and pay dividends in your future.  Below are 8 suggestions for maximizing your time each day:

1. Workout in the morning

Planning to workout in the morning can mean an improved chance that you actually do workout that day. 

Like Billy Beane Playing Small-Stakes Poker

Small-Stakes Texas Hold 'Em is based on a series of bets that are capped after three rounds of betting.  For example, the first round of betting, after the cards are dealt in a $3-$6 game, requires a $3 bet, nothing more, nothing less.  After subsequent cards are turned (the 'flop', the 'turn', and the 'river'), betting is capped at $6 per round. 

These betting rules play a significant role in strategy and have a tremendous psychological effect on

A Day in the Life of Ambitious Al . . .

. . . and his friend, Regular Joe.

Ambitious Al and Regular Joe are friends and coworkers at Wilde, Guess & Co. an investment bank in Chicago.  Both are well-educated, intelligent individuals.  In fact, Joe ranked higher in his graduating class than Al.  Joe talks about becoming a VP and hitting it big time, but talk is what he does best.  Al, more reserved, is goal oriented and, after moving as high as he can at WG&C, plans to open his own hedge fund.  Let's take a look at how each spends his day, while tracking the hours each productively works towards their own individual goals:

5:00 a.m. - 6:00 a.m.: 
Al: Wakes up, stretches, and heads to the gym. (1 productive hour - healthy body is the foundation of a healthy mind!; 1 hour cumulative)
Joe:  Sleeping. (0 productive hours; 0 hours cumulative)

6:00 a.m. - 7:00 a.m.
Al:  Heads back from the gym, cools down,

The Roots of Laziness

"All life demands struggle. Those who have everything given to them become lazy, selfish, and insensitive to the real values of life. The very striving and hard work that we so constantly try to avoid is the major building block in the person we are today."

-Pope Paul VI

Laziness is innate; it was a necessary trait for survival from our distant ancient ancestors.  In Jared Diamond’s Pulitzer Prize winning book “Guns, Germs, and Steel”, early hunter-gatherers would constantly – and probably unconsciously - weighed the risk-reward of their expeditions, with the goal of obtaining the most calories for as little effort as possible. 

The Art of Discipline

"We must all suffer one of two things:  the pain of discipline or the pain of regret or disappointment."

-Jim Rohn

Attaining success requires discipline - no surprise to anyone.  Sidenote:  I'm a big advocate of definitions as too many discussions have lacked resolution and too many articles have left the reader confused by not properly defining the parameters of the subject under consideration.  "He has too much talent!"  "She just got lucky!", etc.  Talent?  Luck? 

So, what does "discipline" mean?  One dictionary.com definition defines "discipline" as:  "activity, exercise, or a regimen that develops or improves a skill; training."  This is the definition we are going to use.

Success: One Man's Definition

Success is personal fulfillment.  It doesn't need to be flaunted or advertised or even noticed by others for it to matter.  It can be a goal to become the next Michael Jordan, Warren Buffett, or super-dad.  To play the guitar like Jimi Hendrix or to be the first of your family to graduate from college.  Success is how you perceive your own life - not how the outside world perceives it and especially not how much money and material goods you can accumulate.  This isn't just a rah-rah cliché - it's the facts.  Ask people who you perceive to be successful about how they reached that level.  Research what people did before they became famous.  I guarantee you that you will find a common thread between their stories.  They didn't do it for the money, they did it because of their love of the pursuit of excellence in their chosen field. 

To begin, I have come to believe that four categories of people exist as it pertains to success:

1)  Those who achieve success and stay on top.  These rare people are "bred" for success - they are brought up from day one training toward a certain goal or who somehow recognize the opportunity early on and have the wherewithal to seize it.  They also accumulate the life skills required to stay on top.  These people may have been guided by a parent or mentor from an early age, but the passion to succeed in their chosen field came from within.  They somehow recognized an opportunity and seized it.  Examples may include:  Warren Buffett, Beethoven, Michael Jordan

2)  Those who reach success, but eventually fall from grace.  They have the technical skill acquired from just enough effort to be able to reach a certain level, but they do not have the mental fortitude to stay on top and, therefore, eventually sink back to the realms of the regular Joe – or worse.  These people may have been pushed beyond their limits by a parent to participate in some activity as a child, without possessing an actual passion for that activity.  Or, they may have lost their senses and control of their own life to a non-desirable trait, like greed or envy or addiction. Examples may include:  Jamarcus Russell or Ryan Leaf; One hit wonder artists; Tiger Woods, to some extent; Bernie Maddoff.

3)  Those who slowly, surely, work towards success.  These people are not brought up knowing what they are going to do or accomplish from an early age, but they eventually come to the realization that, to get what they want out of life, they need to prepare differently from others – train more rigorously, study more intensely, etc.  They understand and possess passion, which leads to goal-setting.  That passion eventually consumes their lives and everything they set out to do in some way is a step towards achieving their goal.  This is the category most successful people fall into and the category anyone can become a part of.  These people tend to have the strongest foundation and, once they achieve success, they tend to stay on top.  They know failure; they’ve felt it most of their lives, but they do not view these missteps as setbacks, but instead as building blocks to a stronger foundation.  Examples may include:  Steve Jobs, many pro athletes.

4)  Those who never achieve success and never strive to, either.  Not much explanation is needed on this one.  We all can name a handful of people who never seem to want anything out of life.  They stay on the sidelines watching others, often critiquing, but rarely participating.  The most frustrating of this category is the man who is blessed with a good brain, a strong body, or an ear for beautiful music, but who fails to recognize these features as gifts and don’t utilize them or develop them to full potential.  Even worse, some bank on these gifts to just “get by”, diminishing the need to develop other life skills along the way, and creating a ceiling on their potential as they progress through life.  Whether the root cause is a lack of awareness of the power of their gifts or pure laziness, the couch is home, instead of the gym, the office, the concert hall. 

My purpose for writing this blog is to focus on #3; if you're reading this blog, it is highly likely you fit into this category.  I hope to provide inspiration for the individual who possesses the tools - they have the courage, drive, and passion - to succeed, but may lack direction.  I hope to show you how others have overcome these obstacles, giving you stepping stones to assist in your journey to a life of fulfillment.