Sunday, April 20, 2008

Being Bullish in a Bear Market

Yesterday morning my partner, Connor, and I went to one of our housing inspections. During the inspection something became very clear: being bullish in a bear market can net great results. It also became very clear that acting upon your gut based on positioning, preparation and profit is important.

My partner tends to be more conservative than I but he is also quite the contrarian investor. It did not take him very long to see the possibilities in the midst of the nation's housing crises, especially in Michigan, but it sometimes takes my clear voice of reason to dissuade doubt. Here is an email that I sent my partner this morning that I wish to share.

Although Connor and I have know each other for quite a while, there is still a constant need on both of our parts to re-evaluate things, considering all things anew. The email speaks to being bullish in a bear market; it also speaks to stepping out in spite of dissenting external voices. The names have been changed.

Dear Connor,

Sometimes when others, purposefully or not, fill out heads with junk we do not think the best thoughts or make the best decisions. (But often times we come around if it's not too late.) I do not know what was said when you and Hilda spoke during the inspection, but what I could see immediately was a difference in attitude about certain areas. (Hence, my "snobbery" comment in the car.) What was apparent immediately after your extended conversation with Hilda during the inspection, while I had to take other calls, was a somewhat dismissive attitude about certain areas where the houses were owned by minorities.

Now, I have always known that Hilda had some issues in this regard. This was the puzzling thing about my friend, Bella, who passed last year whom we both loved dearly. Bella remained close to Hilda, though she was very much different. We may understand something about someone but look for the best in them. This I try to do also. I brought Hilda into our investment process in the spirit of our beloved mutual friend, Bella. As you know, I have been out of the real estate business for some years now and thought that she could write up the purchasing agreements without signing an exclusive agency with her. This way we can keep our options open.

I know the real estate business well and we need her only to show the houses that I have found and write the offers. But it appears that she cannot even do this. Taking a week vacation without assigning someone in the office to negotiate our deals was not acceptable. Since Bella's passing, Hilda's business, by her own admission, has plummeted. I understand this. Bella was the genius and charm behind their partnership. I learned many of my sales techniques from watching her and joining her for social events. I wish you could have met her.

Seasoned real estate agents of Hilda's age (she's almost 70) have a way or redlining that is quite subtle but downright scary. (I have seen this in action myself in the swank real estate office in Birmingham in which I worked part-time those many years.) The bad thing about this is that Hilda herself, though she lives in Birmingham in a very modest house, bordering Royal Oak, struggles herself, especially since the passing of Bella. The house is quite cute with a little red door. You know, adding a red door adds to the prestige of any house. Right?

Hilda does not have much and neither do any of her children. (This is not a putdown, but rather a fact in light of her snobbery about the area in which we wish to invest.) Hence, her strong suggestion to you about her mechanic son who cannot keep a job but who, nonetheless, do what you do. Not! The last I checked you were a senior executive engineer with a Fortune 500 with a MBA from a prestigious school with great investment successes. Her son has most certainly not accomplished these things. God bless him, nonetheless.

Hilda's attitude also displays a real arrogance that does not serve us best in economic terms. Her comment about the other houses not meeting our standard because of the area they were in is not so. This is a solid middle class community that has been affected by the housing market. (In fact, we found 30 houses in Birmingham last week within three blocks.) Where will these people live? Where will those live who have lost their homes? Will they be able to get credit anytime soon? They haven't lost their jobs? What about the displacement of children in the community during the school year? Will they not make payments like those a couple of miles down the road?

Hilda has very little zing and business scruples. Years in the business do not necessarily render expertise. Weak ones, after dropping the ball, do not apologize forthrightly for having done so but will often seek to displace their lack, often sublty depositing fear in order to elevate their postion and standing. This will not happen. We don't need this. I know the current housing market well and this community in particular. I say we charge ahead as planned being bullish in this bear market!

It is always better to handle business appropriately and timely the first time than lame conjectures the second time around that is not sound economically. This is why I hit her hard on several occasions yesterday to let her know that in no uncertain terms will she step over her simple boundary. I tried to be kind in my words. It is not my objective to make her feel bad. But it is my objective to win, looking after our best interest. If she would have just done her job effectively, she too would have benefited, not only with this deal, but the many that will come after. By the way, after this deal, she's out!

Injecting subtle fear tactics (though wisdom is always in order in investing) and being snobbish will not put money in our pockets or provide a great product! Neither will fear of certain areas based on the ethnicity of its people. My first real estate mentor, Cheryl Ann, the self-proclaimed "southern baptist deeply rooted red head hillbilly blue-collar multi-millionaire," who dropped forty thousand or so monthly in cash at the Casino, understood this well! She is brilliant, action-oriented, and brave.

Instinctively Cheryl Ann knew that being bullish in a bear market paid big. She bought nearly 30 houses in the depressed housing market of the 1970s. My years with her were more relevant than the ones I spent in the swank Birmingham office. In fact, she would say to me, "Judith, those people up there don't know what the hell they're doing. Should we compare bank accounts and investments?" Her multiple properties were in various communities ranging from upper to lower; some of the areas were indeed not the best.

Cheryl Ann also leased her homes and sold them on land contracts to anybody who could pay, not asking a lot of questions about credit and work history. She did, however, get the potential renter's or homebuyer's place of employment, number and address. She also insisted upon three references. She owned the houses free and clear and if the homeowner defaulted on the land contract she did not care much; she would then call the cleaning crew in to get the house ready for new occupants. Cheryl Ann made tons of cash each and every month that the likes of likes of Hilda will never make! Though, I wish her well.

The neighborhood that we visited after the inspection was a great neighborhood, though this particular area is predominately African American. I say "though" here for there is still the notion in some places that African Americans will bring the neighborhood down upon arriving in a community. This is not so but neither should this be a problem because money has no color, save green. Wall Street understands this well. Wall Street also understands that African Americans spend twice as much as white Americans even when they make less. Those who are striving to put the best face forward will often spend needlessly no matter the ethnicity.

While I'm not proud of the fact that African Americans are great spenders, it is very much the truth. Why don't we offer them and all others a respect, an equitable contract, good housing, and competitive housing leases and interest rates on our land contracts? We can make a bundle in this market if we're bullish at providing valuable housing and services! Cheryl Ann was a stickler for getting what she wanted while providing well maintained properties for her tenants and homebuyers. She drove a hard bargain and was quite successful. I watched her in action for years and learned a ton!

This is not a lesson on fairness or the virtues of equality only, but a lesson in how to make some loot in this bear market! It is a lesson on how to beat a system that tries to beat you. It is a lesson on putting aside the snide suggestive comments of others in order to see the larger picture. It is also a lesson on being very aware who deposits into our lives.

This note is one on buying and selling in a bear market with the bull charging ahead! It is also a lesson on being aware of what and whom are influencing you. Subtleties are dangerous things. Beware. You have taught me much over these years and I value your words immensely, as I know you value mine. I am also very aware of my role in our partnership which includes seeing beyond the obvious to make better decisions. Now is the time for us to really do some extraordinary things in these extraordinary times. I think a very astute man once told me these exact words recently, one whom I greatly respect in business.

Our vision these past months are not the stuff of pipe dreams or thoughtless investments; they are the stuff of reality, with the potential of great rewards. Cheryl Ann bought the bulk of her homes in the 70s when she was strapped for cash, striking while the market was hot. We are in a much better position than she was then. Let's continue to be bullish in this bear market with our planned agenda. Let's continue to strike while the iron is hot and use judgement and wisdom, not fear, to temper ourselves and to choose areas from an array of communities. My bet remains in Oak Park where there is diversity and a strata of solid middle class incomes. Between the two of us, we will not go astray! The time is sooooooo right! In the spirit of the aforementioned man whom I respect greatly, let's monetize! And I'd like to add let's provide valuable service and a sense of dignity for all.


Are you being bullish in this bear market? How might you do so in relevant ways that will benefit you and your customers? What are you thinking? Are you thinking possibilites?

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