QUICKLY REVISITING WASHINGTON
In an earlier piece, General George Washington: Property Management Genius, we dove into the topic of “Wins and Losses” in the context of Real Estate Investment:
Wins could be turning a greater profit for the year…a way to maintain consistent revenue, or increase revenue, and reduce total expenses…Losses would be eviction, vacancies, major maintenance issues, etc… . …your losses hurt [financially] much more than your wins feel good.
The theme is that the key to success is to avoid losses. Wins are nice. Wins feel like progress. But as investors with an eye on longterm success, the ultimate goal is to minimize losses for the life of your investment. Chasing wins does not get you there. Rather than trying to win, we should avoid losing…which is the story behind Washington’s military success and your successful real estate investment (or whatever it is you do).
And while we’re in the spirit of reaching back to previous articles, let’s finish with a football analogy that relates to Taking The Easy Win: Going for deep passes on first and second down puts you at greater risk of needing a big play on third down while it also increases the likelihood of an interception (turnover) or the need to punt. Might you connect and get a significant gain? Maybe…but the odds are against your being successful consistently. Ideally you can run the ball or execute short screen passes that have minimal risk and allow your team to move the ball slowly but surely…which can then open up opportunities for you downfield. That’s the winning formula in so many areas.
CHARLIE MUNGER’S VERSION: “AVOID STUPIDITY”
Among his many roles and responsibilities over the years, Charlie Munger is most famously the Vice President of Berkshire Hathaway, Inc and one of the most successful investors in history. Forever linked with his business partner and lifelong friend, Warren Buffett, Munger is known for his unique insights on business, which have been uncannily accurate for decades.
Munger also became CEO and Chairman of Wesco Financial in 1984. Over 27 years at the helm, he built the company from a “small savings and loan business into a financial giant”. In an annual letter to shareholders Munger wrote:
“Wesco continues to try more to profit from always remembering the obvious than from grasping the esoteric. …It is remarkable how much long-term advantage people like us have gotten by trying to be consistently not stupid, instead of trying to be very intelligent…”
Munger is saying the same thing to his investors as our team at Nexus Property Management recommends to our clients: play the long game and keep it simple by consistently providing basic value…if you try to get too fancy or too risky, you increase the likelihood of a critical mistake. Don’t try to be too clever. Don’t chase the latest trend.
WINTER HIKING IN THE PRESIDENTIAL RANGE
A couple friends and I have made a tradition of hiking the Presidential Range in New Hampshire every Presidents’ Day Weekend. At 5,712 feet, Jefferson is the third highest peak in the state and it’s a very doable hike, but it’s significantly trickier in the winter. In 2020, two of us tried it for the first time but in being “creative” in our path up, ran low on daylight and had to decided to turn around without summiting. In 2021, a crew of three tried again, this time having to turn back due to zero visibility in white out conditions up above the treeline. On the third try, this past February, we got it done. It took some patience (and willingness to accept failure), which we’d learned due to a hairy situation seven years prior.
Our inaugural Presidential winter hike started with Mt. Lincoln and the Lincoln-Lafayette loop along Franconia Notch. Being younger and inexperienced, the three of us gave it a go despite questionable weather later in the day and below zero starting temps at the base. Once we reached the treeline, we got a feel for what winter hiking was all about…winds took off at upwards of 60-75mph and any exposed skin was vulnerable to frostbite in a matter of minutes; any moisture on goggles immediately froze up and removing gloves to tinker with any gear was out of the question…but the idea of giving up was not on our minds. After 10 minutes (that felt like an hour) of trudging on with little to no visibility we finally came to our senses and agreed to turn back. It wasn’t the exciting victory we’d envisioned prior to driving Up North, but it was a smart decision borne out of avoiding stupidity, as Munger would put it.
Days later, once we’d returned home, we learned of the death of a 32 year old hiker who was just miles from where we’d run into trouble of our own that day. She was hiking alone and attempting to summit Mt. Washington when she became disoriented and signaled for help that unfortunately failed to locate her. Overnight temperatures dropped to 30 below and winds exceeded 100 miles/hr. Kate Matrosova, an experienced hiker, died of exposure.
“THERE’S JUST NO ROOM FOR ERROR IN A PLACE LIKE THAT”
The quote above is from Lt. Jim Goss of New Hampshire’s Fish and Game Department, in the context of Ms. Matrosova’s death. But as is the theme of this collection of articles, there is universality to so much in life. Making an unwise investment or financial decision isn’t a matter of life and death, but chasing the win instead of avoiding a loss can bring added risk where you can’t afford it. Choices driven by emotion or short term gains at the expense of long term goals can destroy all of your positive momentum and potential for ultimate success. When it comes time to make big decisions, more often than not, the right play is avoiding a loss rather than chasing a win.
Notes:
https://fs.blog/avoiding-stupidity/
https://finance.yahoo.com/news/charlie-munger-turned-wesco-financial-072403781.html
Great story and analogy. Mother nature and business decisions are one in the same in that they both are bigger + stronger + more unpredictable than 1 person, and they must be respected and approached humbly!