Monthly Archives: March 2008


Back in 1993 I experienced a small meltdown in the fixed income/mortgage backed securities market. Fortunately I worked for a money management firm that focused on neutralizing risk and adding incremental value through security selections which provided yawn-evoking enhanced returns over a stated benchmark. In 1994 our team successfully raised close to $15 billion in assets – my mantra, “Bonds are Boring.”

Now let’s get down to reviewing definitions:(all will be quoted from Merriam-Webster)

FIXED Pronunciation: ˈfikst Function: adjective Date: 14th century
1 a: securely placed or fastened : stationary b (1): nonvolatile (2): formed into a chemical compound c (1): not subject to change or fluctuation

INCOME ˈin-ˌkəm also ˈin-kəm or ˈiŋ-kəm
Function: noun
Date: 14th century
1: a coming in : entrance, influx
2: a gain or recurrent benefit usually measured in money that derives from capital or labor; also : the amount of such gain received in a period of time

If we pay attention to how these types of securities are defined we wouldn’t expect anything more from them. If you want equity-like returns, stick to equity.

Now let’s apply this to Real Estate. In previous blogs, I reiterated real estate’s traditional role as an inflation hedge and store of value with little liquidity. Not a buy and flip asset or an ATM machine.

REAL Pronunciation: ˈrē(-ə)l Function: adjective Etymology: Middle English, real, relating to things (in law), from Anglo-French, from Medieval Latin & Late Latin; Medieval Latin realis relating to things (in law), from Late Latin, real, from Latin res thing, fact; akin to Sanskrit rayi property
Date: 14th century
1: of or relating to fixed, permanent, or immovable things (as lands or tenements)
2 a: not artificial, fraudulent, or illusory

ESTATE Pronunciation: i-ˈstāt Function: noun Etymology: Middle English estat, from Anglo-French — more at state Date: 13th century
b (1): possessions, property; especially : a person’s property in land and tenements
(2): the assets and liabilities left by a person at death c: a landed property usually with a large house on it dBritish : project 45British : station wagon6: farm, plantation; also : vineyard

Real Estate is tangible. We are not growing more of it (other than developments and high rises.) But it is not equity and does not promise double digit returns. It promises something that’s physically existent.

Buy real estate because you need a house to live in and can afford it, or land for farming or passive enjoyment because you can afford it, or commercial building because it makes sense for your business to own real property. It’s real, hang onto it if you can.

Bum Stear (Making Sense of the Current Craziness)

During my days in financial services we jokingly called Bear Stearns, Bum Stear…little did we know how true that would turn out to be. I also really wanted to work for the venerable investment house in the mid-1980’s. Back then the chairman was Ace Greenberg – he ran a tight ship and was known for his “Paper Clip” memo – basically chastising any employee who wasted firm resources and threw out paper clips. What a difference 20 years makes.

Between this, Eliot Spitzer and countless other recent disappointments, how does one rationalize all this news and move forward with optimism. We all need to wake up and review some general truisms and principles by which to live!! Firstly, if something seems to good to be true (like repackaging crappy mortgages into A or better-rated mortgage-backed securities ) it usually is too good to be true!! Secondly, if you don’t understand it, and big, complex words are used, don’t automatically think you are stupid – it probably isn’t logical so avoid it like the plague. Thirdly, stick to value when investing in stocks, real estate and consumer goods – for stocks look for companies with real year after year earnings and cash flow, for real estate, look to areas that have not been over-developed and locations with few or no foreclosures, and for consumer goods – stick to the basic necessities. And lastly, work hard and stay focused and positive!!

Find the Good in Everything

My Current Reading List has some interesting themes. The last three books I read are: What is the What by Dave Eggers, Agent Zig Zag by Ben MacIntyre, and Three Cups of Tea by Greg Mortenson and David Oliver Relin.

The main themes that I gleaned were: Natural Resources, Fanaticism and Humanity. And why should I write about this and anyone care – well – it’s because I think these themes will continue to have an impact on us. Fanatics will always seek power and try to dominate whether it’s Hilter, Osama bin Laden, Elliot Spitzer or any fundamentalist sect. The fight for natural resources for one’s national security will always dominate the national agenda. And the heart warming part of this is that humanity and goodness find a way to prevail.

What is the What is a novel about the lost boys of the Sudan and one boy’s recollection of the horrors of being a refugee. Imagine the peace loving Dinkas being ousted by the oil grabbing Muslims; imagine witnessing your village annihilated and then living in a tent city for 10 years and surviving to want to return to build schools and educate. WOW!!

Agent Zig Zag is about a real double agent British spy during WW II. He was a crook with a heart. He helped the British collect information about the Germans and through it all he developed a father-son-like relationship with one of his German handlers. Despite all the horrors, Zig Zag still had compassion and saw the humanity in this one German.

And my absolute favorite, Three Cups of Tea is just plain inspiring. An American building schools in tribal, Muslim Northern Pakistan pre and post 9/11. Greg Mortenson elevates the notion of unbiased education to new heights and against all odds raises money to build schools to help many tribal villages learn about modern life. It is his belief and the belief of many of the tribal elders that education can fight the Taliban and fanaticism. I can go on and on…you must read this book to fully embrace all three themes.

For me, I am inspired to appreciate the good that is all around me, to shun fanatics and to explore ways to educate and promote tolerance.