Stocks -vs- Real Estate Investing
For most of my RE career, I’ve been a “Real Estate is the only way to wealth” kind of guy. 90% of my net worth is invested in real estate assets & partnerships. Great vehicle. However, more recently, I’m also intentionally developing my skill in investing in the stock market.
I’m currently listening to Buffett & Munger, Unscripted, a book of Charlie Munger & Warren Buffett’s discussions over the past 50 years which took place at their annual shareholder event. These discussions are organized by topic-and you can use this audiobook to condition your mind into a more disciplined investor -yes, in stocks, but also you can “translate” the thinking into real estate investing.
The Most Valuable Form of Compounding (it’s NOT interest…)
I was surprised to hear Charlie describe the compounding of knowledge as more important than the financial compounding of an investment. Sounds a bit like: “How much better to get wisdom than gold! And to get understanding is to be chosen above silver.” (Proverbs 16:16)
Charlie said, “Spend each day trying to be a little wiser than you were when you woke up. Discharge your duties faithfully and well. Step by step you get ahead, but not necessarily in fast spurts. But you build discipline by preparing for fast spurts Slug it out one inch at a time, day by day, and at the end of the day – if you live long enough – most people get what they deserve.”
I’ve experienced this in my own life. All of these Jewels of Wisdom over time, discovered with great excitement along the way, have enabled the life I live today. This continuous improvement over time, or Kaizen, is the most important factor in long term wealth. A few books I recommend everyone on my team read can be found here.
Hold, Don’t Trade – Stocks & Real Estate
The stock market’s biggest challenge for individual investors? The sheer ease of buying and selling shares. We’ve all been there: seeing a stock dip and, in a moment of panic, hitting that “sell” button to stop the mental anguish of a “losing” position. Yet, history shows that holding for 5 to 10 years often nets those same sellers 2-3 times their initial investment.
Real Estate investing provides an automatic hedge to impulse selling because of the lengthy timeline to exit & receive your cash. List the property, wait for a buyer, go through inspections & mortgage approval, and maybe, 60-90 days later, you receive your cash. It is precisely this “forced hold” period & delayed gratification (getting the $) which has allowed me to hold properties 5 years or more-and realize the doubling or tripling of my money.
Only in the past 6 months have I personally been successful in the stock market by resisting the impulse to sell when I was down 10% or more. Now, these positions are back in the profit-some as much as 45%-in LESS THAN 6 MONTHS. The one thing I did right here is NOT SELL. Charlie calls this, “sit on your ass investing.”
Real estate naturally embodies this principle, making frequent or easy selling impractical. This eliminates a significant profit killer: selling too soon. It’s precisely why real estate remains my favorite investment and my largest long-term allocation. It always will be.