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You Can’t Time the Market: When Hubris Fails

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Coronavirus Infects Stock Market: Part XLVIII

You can’t time the market. Don’t even try, because you just might end up being wrong.

Consider commercial real estate, for example. Anyone want to buy a high rise in Manhattan?

Let’s hop in our time machine and look back to 2018 when the stock market was having a rough year. The DJIA ended the year down close to six percent.

Big bad pensions wanted nothing to do with stocks. They wanted the “safety,” the “reliability of,” wait for it—commercial real estate.

Let’s roll the footage (WSJ article Nov. 2018):

U.S. public pension funds are taking on more real estate, and at times some of the riskiest types of property investments, as they try to close their funding gaps.

American public plans with more than 20,000 members had an average 7% of their assets in real-estate investments at the end of 2017, according to a Wall Street Journal analysis of Boston College’s Public Plans Data, which contains the most recent numbers available. That is up from 4% in 2006, representing more than $120 billion in additional pension money flowing into real estate.

Some of this increase is due to the construction of new properties designed to be sold later for a profit. These so-called opportunistic investments by pensions grew nearly sixfold between 2006 and 2016 even as allocations to “core” existing properties remained flat, according to an analysis by CEM Benchmarking.

One pension consultant advised an increase in “core” (read commercial) real estate, probably because it was going up in value, and more than likely, assets that are going up are an easy sell to the pension board.

Imagine the 30-foot conference table, the business suits, the presentations, the hubris, and you get the picture.

Pension boards are all about protecting jobs: their own that is.

If some fancy consulting team advises real estate and then the pension fund follows their advice, then there’s no one to blame. Perfect.

Here’s what our billion-dollar soothsayer said:

“In a core property, you have a known source of income on day one and, depending on the lease structure, you have a pretty good understanding of future rents. Versus something you’re going to build today, which you’re not even sure if you’re going to have a tenant.”

How’s that known source of income working out?

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E.J. Smith - Your Survival Guy

E.J. Smith is Founder of YourSurvivalGuy.com, Managing Director at Richard C. Young & Co., Ltd., a Managing Editor of Richardcyoung.com, and Editor-in-Chief of Youngresearch.com. His focus at all times is on preparing clients and readers for “Times Like These.” E.J. graduated from Babson College in Wellesley, Massachusetts, with a B.S. in finance and investments. In 1995, E.J. began his investment career at Fidelity Investments in Boston before joining Richard C. Young & Co., Ltd. in 1998. E.J. has trained at Sig Sauer Academy in Epping, NH. His first drum set was a 5-piece Slingerland with Zildjians. He grew-up worshiping Neil Peart (RIP) of the band Rush, and loves the song Tom Sawyer—the name of his family’s boat, a Grady-White Canyon 306. He grew up in Mattapoisett, MA, an idyllic small town on the water near Cape Cod. He spends time in Newport, RI and Bartlett, NH—both as far away from Wall Street as one could mentally get. The Newport office is on a quiet, tree lined street not far from the harbor and the log cabin in Bartlett, NH, the “Live Free or Die” state, sits on the edge of the White Mountain National Forest. He enjoys spending time in Key West and Paris. Please get in touch with E.J. at ejsmith@yoursurvivalguy.com To sign up for my free monthly Survive & Thrive letter, click here.