Greatest Hits: Volume 20 (How To Be A Genius)

Greatest Hits

Happy Saturday everyone!

Back in 2015, during one of my semi-annual visits back home, my wife and I went to check out a house.

The house itself wasn’t remarkable.  Four bedrooms, a couple of bathrooms.  Somewhat dated interior, which could use a few upgrades.

The sellers clearly left all the improvements to the subsequent owners.

However, the house sat on a big lot in a very nice neighborhood.  One of those well-established areas where the supply of new houses is severely constrained, yet the number of buyers never is.

It was on sale for $1m.  The math was simple – $200k down, $800k mortgage.

Circa $5k in monthly rental income, less mortgage, property taxes, and maintenance expenses.

We thought about it and passed.

A million seemed like a punchy price, especially for a dated property that didn’t cash flow all that much.

I was still a VP, $200k was (and is) a lot of money, and we were on the verge of starting a family.

No, thank you.

Earlier this week, my wife sent me a link to a real estate advert for the same house.

Sold for $2.4m.

Once In A Lifetime

The last six years have clearly been a unique stretch.  Interest rates kept coming down, with asset prices doing what they do best in this kind of environment.

My $200k would have been worth $1.4m now, and that’s before factoring in mortgage paydown and the modest, but ever-increasing cash flow.

A mid-level investment banking VP makes about £300k – £350k these days. Once you factor in taxes and exchange rates, that works out to about $275k USD per year.

As Vicki Robin would put it, it’s not $1.4m – it’s 5 years of your life.

Of course, this is an (intentionally) punchy example. First of all, you don’t need to feel sorry for me – I’ve certainly had my go at property investing over the years.

Secondly, house prices rarely compound at 15% per year.

Then again, they don’t really need to.

Even a much more pedestrian 5% appreciation (not uncommon in supply-constrained areas as they tend to grow above inflation) would get you to $2.4m.

Yes, it would take 18 years, three times as long.  But the monetary gain would be just as impactful.

Never Easy

Hindsight is always 20/20.  But the one universal truth I’ve learned over 15+ years of investing is that you will always buy at the top.

It makes a ton of sense. Asset prices go up over time.

As such, it is only logical that they are higher now than they were at this time last year.  And more likely than not, they will be higher this time next year than today.

The curveball, of course, is the “more likely than not” part.  Because even an idiot can see that’s not always the case:

S&P TSR

Well, if you are one of the people who are tempted to hoard cash and buy the inevitable dip, I encourage you to read Nick Maggiulli’s latest piece, where he convincingly destroys buying the dip as an investment strategy.

For everyone else, here’s a proven strategy to be an investing genius:

Step #1: Buy as many productive (i.e. real estate, equities) assets as possible

Step #2: Hold on for as long as you can

The markets will do the rest.

Have a wonderful weekend all.

From Yours Truly

What I Wish I Knew In My 20s

The True Cost Of Private Schools

Value Creation

Building Wealth

If You Want What I Have, You Have To Do What I’ve Done – ESI Money

Never Sell Assets And Pay Less In Taxes Like Billionaires – Financial Samurai

Fuel For The FIRE: Updating The 4% Rule – Vanguard

The Broken Clock – Dollars and Data

Early Retirement

The Contrast Effect: Post-FIRE Life vs The Old Life – Monevator (a really enjoyable read)

Two Years Of FIRE: Life After Exiting Medicine – Physician On FIRE

The Biggest Problem With Early Retirement – Retire by 40

Crypto Corner

Will The Next Web Be Built On Ethereum? – Financial Times

Can You Make 10x With Crypto Tokens?  Here Are The Risks – Banker on Wheels

Lifestyle Design

Relax!  You’ll Be More Productive – The New York Times

What Deadlines Do To Lifetimes – The New Yorker

Reclaiming My Life – The Humble Dollar

Recommended Books

As usual, some top-quality reads to cap it all off:

The Snowball: Warren Buffet & The Business Of Life – Alice Schroeder

Quit Like A Millionaire – No Gimmicks, Luck, Or Trust Fund Required – Kristy Shen, Bryce Leung

The Art Of People: 11 Simple Skills That Will Get You Everything You Want – Dave Kerpen

Happy weekend all!

 

P.S: Attention New Bloggers:

if you are a personal finance blogger who hasn’t yet been featured on Greatest Hits, I would like to hear from you.

Please send an email to bankeronfire at gmail dot com with a blog post you would like to submit for consideration.

The key criteria for inclusion are as follows:

(i) Content that will be interesting or beneficial to the readers of this blog (I hope you will forgive me for reserving judgment on this one)

(ii) Your blog must be at least 6 months old, with regular posts. Too many bloggers flame out early, and I don’t want the readers here to follow a bunch of dead links.

I look forward to hearing from you.

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Banker On FIRE is a London-based M&A (mergers and acquisitions) investment banker.  I am passionate about capital markets, behavioural economics, financial independence and living the best life possible.

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4 Comments

  1. Thanks for sharing your story. That would have the family been a nice return. But I’m sure the money you didn’t use for a down payment was invested elsewhere probably did well as well right?

    I had to let go of my property I own for 13 years in 2017. I wanted to own it forever, but after three years of managing five different sets of guys, who loves to throw parties, it was too much.

    As a new father, I Couldn’t handle the late payments, the complaints, and all that other BS. In retrospect, I wish I would’ve held on. But at least I reinvested the proceeds.

    • That’s right – I’ve made a few other real estate investments, and they’ve done really well, though I didn’t 7x my money in 6 years.

      By the way, I use property managers for most of my investments. Partially because I’ve got a busy job and it’s not easy to manage properties remotely. But I’ve got a feeling I will keep them when we eventually move back. Just don’t feel like managing high-maintenance tenants is the best use of my time…

  2. Doing the “HODL” strategy is so counterintuitive to human nature because we always think ‘we can do better’ or optimize for our investments, especially if it dips right after we buy it.

    Statistically speaking and looking at people that I know have gotten quite wealthy from investments though — it seems like just investing in good stuff and never looking at it again is really the best way to get healthy.

    • Problem is that we all have a bias for action

      That’s usually a good thing – EXCEPT when it comes to investing….

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