A Real Estate Career: Lessons Learned (2014-2015)

In 2014, my tax business was winding down, and during the summer I was getting anxious again.

As these things tend to happen, while randomly talking to a friend, he asked me if I wanted to join his hedge fund as an analyst.

Completely putting aside the fact the position was in Hong Kong, I accepted.  And for the next 18 months, I helped them analyze real estate and Korean stocks.

This was my first real job in finance.

When you work in finance, you get spoiled – especially if you’re on the buyside, and you have all sorts of service providers working for you.

Finance draws hard-charging, intelligent, and driven types, and when you have Ivy Leaguers and graduates of Asia/Europe’s top 10 universities as your service providers – your bankers, brokers, traders, accountants, and researchers, well, I’m not sure I’ll ever have that level of service again.  Emails were written to me in clear prose.  If there was a problem, I received a phone call explanation within seconds.  Things got scheduled, presentations were efficient, full of information, and if I asked for anything, things just got done.  No one passed the buck, and if they did, it was to actually find the person who could solve the problem, and these problems got solved in hours, if not minutes.

Sigh.  Maybe this is the daily reality for many people, but for me it was new.  This meant that literally all I had to do was focus on the thing I had been hired to do, which was to stay plugged into the markets, pore through financials and industry reports, think, and analyze.

Never before in my life had I woken up so early, before 6, to catch the bus into Central to start fielding the calls and get work done before the Korean and Japanese markets opened at 8am.  Never had I had so much energy as when I was plugged into the information flow and market chatter every day, hearing from analysts, companies, and brokers spanning Tokyo to Mumbai.  The financial markets are an arena where the biggest game in the world – the exchange of capital – is played out on a daily basis, against some of the smartest people, with huge sums of money at stake.

And looking back at that time, that’s what I miss the most.  There’s no feeling or job quite like working in the financial markets – the pace, the energy.  It’s like being plugged into an IV of chatter and information and raw sentiment.  You can actually feel, around town, when the markets are up or down.

Now onto the actual job.

Our fund had a value bent, which meant that we were looking for undervalued or overvalued companies to buy or sell.  Before joining, I had a romanticized notion that it was all about digging through data and research, coming up with some sort of brilliant, deviant opinion and using that to make money.

There is that.  But I learned I was quite naive, because identifying the stock to buy/sell is only a fraction of the job.

Being good at analysis, and picking the right name, is only one leg of the stool.  It doesn’t matter if you’re good at analysis if you buy in at the wrong time or sell at the wrong time.  It also doesn’t matter if you buy/sell too much or too little of it, or if you can’t or don’t have the conviction to hold during the hard times.  Also, since you’re never going to be 100% right, 100% of the time, you have to be constantly evaluating your own decisions, your decision-making process, your own thoughts, in context with the present and history of the market.

In short, not only do you have to be brilliantly analytical, you have to have the instincts of a gambler to size and time the bet, the temperament of a stoic to not let gains or losses affect you, and the introspection of a monk.

Only by getting all four of those things right, can you succeed in the job, and it’s why investing is so hard.

It’s always been my opinion that investing is the best interdisciplinary exercise you could ever conduct, or learn.  And one of the biggest reasons is for the last point above.

Constantly evaluating your own thinking and process for making decisions will serve you well not only in investing, but in life in general, and is the foundation for success in general.

At the fund, though, I found myself teetering on the edge of this.  If you’re not careful, endless introspection can lead you to have massive self-doubt all the time, and start going down epistemological rabbit holes, like ‘how do I know I know this’, or ‘am I sure that I know this, and with what probability, and how do I know this probability is even correct’.

In my job, I found a lot of parallels to surfing.  The financial markets do not have sympathy or other human sentiments, just like the ocean.  You can’t fight them, just as you can’t fight or force a wave to do anything.  You can only react to what’s given to you.  You can’t argue about rightness or wrongness.  The markets, and the ocean alike, do not care about you.

Working in the markets is one of the most humility-inducing jobs you can have, and those who get arrogant get crushed.

In many ways, the job gave me an appreciation for knowledge in general.  When you can sit in a room with extremely intelligent people discussing a company, and everyone has extremely divergent, completely opposite viewpoints and opinions on the company’s prospects, you begin to see that it’s hard to purport to ‘know’ or declare anything with certitude.

And that states of the world are best expressed in probabilities, and the smartest people are always questioning and changing their minds.  They’re comfortable with uncertainty, and don’t let it paralyze them.

I learned a lot on the job, but that might have been the greatest lesson for me.

A Real Estate Career: Lessons Learned (2012-2015)

It’s weird the things that stick with you.  For the next few years, I worked three full-time jobs at a time.  I was in full execution mode as a property tax agent, international theme park consultant, and commercial property agent – and I don’t remember much about the period.

When I look back, I think it’s because I wasn’t growing.

There was little new to the jobs.  I was just executing on processes I had put in place years earlier.  I had become proficient, an ‘expert’.  And so the result was that financially, they were some of my peak earning years, but overall I’m not sure it was that fulfilling.

If you can find jobs where you get paid handsomely for personal growth, now that’s the holy grail.

But there were a few things that stuck with me.

I had a client who was an ex-Drexel Burnham Lambert banker.  He predated Michael Milken give/take by a decade, and had apparently made so much money that there was nothing else to do with it but plow it into real estate.

He worked out of one of his apartment properties in Brentwood, in a ground floor office strewn with papers and newspaper clippings.  He was in his 70s and his main tactic in any negotiation or even discussion was to immediately pretend he was slow.

Whenever you began speaking, he would tilt his head and look at you curiously before responding with a set of ‘is that right’s and ‘you don’t say’s.  He didn’t say much, but you could tell he was processing everything.  With so much office space all around LA, he offered free space to young brokers as a way of being plugged into deal flow.  Essentially, to listen.  He was always listening.  Sometimes his ‘you don’t say’s were sarcastic, as if he couldn’t keep listening to our stupidity anymore, but he was always listening.

We had another client who was a movie mogul.  Over a few decades, he had opened a regional chain of movie theaters and plowed the proceeds into real estate.  And about a mile down from our office, he owned 25 condos in the heart of Redondo Beach.  We brought him multiple offers on the property.  $18 million.  $20.  $22.  But he wouldn’t budge for less than his number, which was a million dollars per unit.

And although we had clients who probably would have bit at $22, he didn’t.  Something about his patience struck me, sitting in his office modeled after a miniature theater, cracking a grin at each new offer we brought him, and sitting back, a picture of consummate contentment, and telling us, if we could please try to get a higher number.

Years later, he was proved right.  Actually, the value of his condos probably exceeded a million dollars a unit.

The thing that both these clients had in common were that both owned and controlled more than $100 million in properties, each, both were well into retirement age, and both arrived at their offices at the crack of dawn.

This is just a sample.  There are people like this all over the country, all over the world.  It was just another lesson about wealth.  In so many ways, wealth is not the goal.

I wanted to be like them.  It would be nice to have the level of wealth they did, but I’m talking about their working for the purpose of their work itself.  And having a purpose that made them work harder than people half their age.

No doubt, it’s what made them great.

Then we had another client.  She had emerged as a buyer for another client’s property in Hermosa.

She made us work.

Among other things we had to do to close the deal, we had to chase down people to get them to sign estoppels.  The existing owner didn’t want to do it, because he preferred to be liked more than he preferred to sell the building.

This meant we had to camp out in front of all 12 units and try to get the tenants to sign a document verifying that they were paying, exactly what the rent rolls said they were paying.

Naturally, a lot of them were suspicious.  Was the new owner going to kick them out?  Was she going to convert the apartment into condos?  They were nervous.

No, no, I answered confidently.  I reassured them there was nothing to worry about, that the new owner had no intention of redeveloping.

But there was something else I had forgotten about.

After dragging the deal across the finish line, I felt a sense of relief as we pulled up to the new owner’s $10 million house in Palos Verdes, with a tennis court in the back.  In the living room, she proudly showed us a rent roll of the $80 million portfolio she managed, from her living room.

And later, she even more triumphantly emailed us to say that she had doubled rents, because the previous owner had been undercharging.

It left me with a bad taste for these kinds of deals and people in general.  All part of the industry, but I couldn’t help but think that while knocking on doors to get those estoppels, I had led some of those people astray.  Some of them, kids younger than I was.

It turned out to be my last deal there.  That, combined with the diminishing fortunes of the property tax appeal business, a countercyclical business if there ever was one, led me to other things.

One last reflection about wealth.  I spent half this time period in Hong Kong.

And in Hong Kong, a summer rite is the boat trip.  On the weekends the waters around Hong Kong and its myriad islands teem with junks and yachts that anchor off a secluded beach, then descend into drunken orgy-level partying.

One of our friends was dating a guy who was as close as you could get to Hong Kong royalty.  He was the scion of a billionaire tycoon, which made him one himself, but you wouldn’t know it to meet him.  Well-educated, low-key, soft-spoken, there is no way you could pick him out in a lineup, as is often the case with billionaires.

Anyway, this weekend we had use of his dad’s yacht.  For seven of us, a uniformed staff perhaps double that number helped us board, navigated, helpfully pointed out the amenities, cooked us a hot lunch, and generally gave us the kind of five-star service you would expect from what was basically a floating villa, way larger than my childhood homes, combined.

After anchoring, there are only a few things you can do.  We rode jet-skis.  We bounced off of inflatables.  Some of us read a book on the upper deck.  Some of us just floated in the water.

Which is what I did.  Bobbing, I could see all the other boats around us.  Some of them were like us.

Splendid, sleek yachts.  Barely any people on them, though.  There were kids on some of the nicer yachts, towards the front, and they looked bored out of their minds.

And, the people on the nice yachts were all looking in the same direction I was, which was towards the bacchanal boats, the ones thumping music that could be heard hundreds of feet away, with the people backflipping off the upper rails, doing keg stands, sliding headfirst and belly up down makeshift slides into the water, floating around the boat suspiciously in pairs.

Of course sometimes it’s nice to be alone.  But also sometimes I think that with great wealth comes great isolation.

I noticed this during my brokerage days in LA.  Sometimes it seemed like our richest clients called…just to talk.  Or when we went out in Hollywood – there is type of person, usually male, who buys drinks for everyone, is exceedingly generous, talks a lot, is best friends with everyone at the bar, is also exceedingly rich, and then at some point during the night…leaves alone in a nice car.

In the summers in LA, you can ride a bike from Venice Beach down to Redondo.  Over the course of 15 miles, the crowd changes.  Rowdy and larger up around Venice and El Segundo, Playa del Rey, huge barbeques with organized beach football games.  Then you reach the $10 million houses (at least) in the South Bay, along the Strand.  Nice organized picnics going on, some beach volleyball games, more individual, more rich, smaller.  Sometimes just a guy on the upper balcony of his home sipping coffee and looking out over the ocean.  Of course in some of the houses in between were always some frat antics going on, but still.  Richer, more individual.  In many ways, more alone, although there’s nothing wrong with alone.

But, now why is that?

True Hustlers

There’s no leisurely setting to the pace and speed of life in Hong Kong.  You can feel it the moment you land at the airport.  Suddenly, everything is fast and you are too slow.

From the subways and trains that arrive at sub-1 minute intervals, to the buses that will run you over, or at least off, the road – because they, and not pedestrians, have the right of way, or the taxis will take off before you shut the door, because they’re Japanese cars where the driver can close the door with a button, or even the people, who will not just graze elbows, which might be common in major cities, but actually smash their shoulders into you without apology.

Hong Kong is a city made for work, and by work.

It was literally created by a trade treaty in which one party got to sell drugs in exchange for gold, on a barren rock in the middle of the ocean with so little flat land that half the downtown area is built on artificially created land.

It was made so people could go there, trade freely, and then leave with the fruits of their labor.

While people settle in Hong Kong, many also have ancestral ties, homes, and families on the mainland, where they retreat during vacations or during retirement.  And for an entire class of expats employed in the financial services industry, well, Hong Kong allows you to make 1%-er money, pay some of the lowest taxes in the world, generate wealth, and move back home.

Everyone is a hustler in Hong Kong.

But the realest hustlers?  They’re not the investment bankers working all-nighters deep in the recesses of the IFC, Cheung Kong, or ICC.  They hustle too, but they party just as hard.

The real hustlers don’t get to party.  The real hustlers are almost invisible except on the weekends, when they come out on their one day off and congregate in Wan Chai and Causeway Bay.  And you could make the case that Hong Kong is run by them.  The city wouldn’t be as productive, as operationally leveraged, or as able to work, if they didn’t exist.

The maids.

In Hong Kong, the Indonesian and Filipina “domestic helpers” (maids) have standard working hours of between 12 to 15 hours a day, 6 days a week.  Often, their only space to themselves is a small closet that is as long as the length of a single bed, and just as wide – and sometimes if their households employ two maids, well, the bed is a bunk.

Working from 6am to 10pm is not uncommon, with household duties that include cleaning, cooking, taking care of the elderly and babies alike, and being the first point of call when the baby wakes up in the middle of the night.  Also, household shopping, miscellaneous chores.  Six days a week.  At least 10 hours a day.

Also, they do it without having basic rights or representation in the cities where they literally raise the next generation.  Sometimes they get kidnapped, their passports taken away, funds due to them not paid.

This is a note of gratitude to them.

Working and living in this part of the world, you come face to face with an entire class of manual laborers who are invisible.

Sometimes, working hard is no guarantee of success.  Sometimes it’s just a guarantee that you’ll survive.