Investing: Choosing the Right Merits vs. Hype

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While the masses have uncertainty, savvy investors are investing in the right assets, and for the right reasons, are you?

in·vest / verb
to put money to use in something offering potential profitable returns, as interest, income, or appreciation in value.

According to the dictionary’s definition of “invest,” it seems like that’s the last thing on an investor’s mind when placing money into the stock market – to put it to use.

What most investors do is closer to speculating and gambling. There’s no expectation of putting that money to use in a productive business than to reap the benefits later on from that business.

gam·ble / verb
1. play games of chance for money; bet.

Investing and speculating are very different.

Speculating is like paying the lottery, but instead of hoping the right numbers pop up, speculators are hoping to hit a home run with the latest hot stock, crypto, bitcoin, cannabis, or any other unproven hot new market hyped up by the financial press.

Many of these hot new markets have one thing in common – most have yet to pan out or will never pan out (GOOGLE cannabis in California and see how those who rushed to the marijuana gold rush are not making money).

Investing is putting your money to use with the expectation that your capital will contribute to something productive that will grow and reward its investors.

Finding those productive businesses and assets will require looking to the merits of the underlying opportunity and not at the odds of hitting it big.

The Covid-19 pandemic has thrown a wrench in the national and world economies, with the latest news out of DC reporting that the economy shrunk 4.8% in the first quarter. The drop is historical, but if history has taught us anything, it’s that the economy always bounces back.

In a post-Covid-19 economy, there will be new opportunities as the only way to go will be up.

If the recent pandemic-induced Wall Street volatility has taught us anything, it’s that the stock market is built on a shaky foundation populated by speculators. At the first sign of danger, speculators flee with their tails between their legs. Meanwhile, their capital is sidelined until they think it’s safe to go back in the water and roll the dice on the stock market again.

Investors with a real stake in the business will not yank needed capital essential for maintaining and growing the business. Speculators don’t care about the underlying business.

In a post-Covid-19 world, investors will be faced with new opportunities. Many who had speculated on the stock market and lost will now have the opportunity to take a new investment path.

Will they take the path of investing on the merits or the path of speculating on hype?

Take a cue from the investors who didn’t blink during the recent economic upheaval. Their investment decisions aren’t based on hunches, guesses, and gut feelings. They have concrete criteria that every investment must meet before putting their money “to use.”

At a minimum, the following attributes are essential to every savvy investor:

  • Proven Markets.
  • Proven Demand.
  • Invest for Income.
  • Invest for Growth.
  • Tangible Asset.
  • Low Correlation to Wall Street.

Interestingly, the attributes essential for any investment under consideration in a post-Covid-19 are the same attributes savvy investors demand in all situations.

That’s because it doesn’t matter whether you are investing in a time of expansion or recession, income-producing tangible assets with proven demand in proven markets will build wealth when the economy is growing and shield income when the economy is shrinking.

In a post-Covid-19 world, we expect the investing landscape in the income-producing real asset sector to be similar to the post-financial crisis landscape where the demand for affordable housing and multifamily assets shot up with supply never catching up.

Now with the recent downturn and household income shrinking once again, we expect another uptick in demand for affordable housing – this time in a market where supply still hadn’t caught up from the last crisis.

What trends do we expect in the post-Covid-19 investing environment for affordable housing and multifamily assets?

Trends similar to the last time the economy shrunk:

  • More tenants.
  • Fewer vacancies.
  • The rapid absorption of available inventory.
  • Increase in rental rates.
  • The increasing gap between demand and supply.

In a post-Covid-19 world, avoid speculating and keep the following in mind:

INVEST IN THE MERITS OF THE ASSET
INVEST IN NEW TRENDS IN PROVEN MARKETS
INVEST WHERE THE MARKET IS GOING

Andrew Lanoie

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