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PREDICT THE CHANGES AND WIN

Predict the Changes and Win

It seems to me that one of the biggest challenges we face now isn’t the pandemic, or inflation, or geopolitical unrest. Rather, it’s the way this confluence of challenges plays out across 24/7 news feeds and social media.


Take inflation. We hear about impending doom: A potential global recession, job loss, the decimation of our already shaky economy. According to the news, life is set to go off the rails at any moment.



Now, there may be some truth to this: Yes, we’re a bit pinched at the pump and our groceries have gotten notably more expensive (and I think that we’re already in a bit of a recession, friends). But we’re also (collectively) still spending in sectors like travel, restaurants and retail.


Individual reality versus collective psyche

This isn’t to say that the pandemic hasn’t caused incredible pain and heartache and economic disruption; this isn’t to say that inflation and rising interest rates aren’t real and really difficult to integrate into our short-term financial realities; and this isn’t to say that geopolitical unrest and unpredictability aren’t cause for some alarm.


But we’re an enormously resilient species and from everything I see and hear around me – from reading the tape and paying attention to behaviors and actions and conversations – I don’t see the sky falling. Instead, I see people going out to eat, shopping, traveling, working and generally getting on with life.



My conclusion, then, is this: There are ongoing challenges, but I can’t help but think that in some ways, it’s also the inescapability of the news about the challenges that’s sometimes harder to deal with than the actual issues.


Here’s why this may matter to you.


I’m contrarian by nature

When nearly everything I read and hear tells me that the sky’s about to fall, my contrarian nature thinks, instead, that great things are on the horizon.


In something of a chicken-or-egg scenario, I’m not sure if I became a trader in part because of my contrarian nature, or if I became more contrarian as part of my trader training. But what I know is this: That by the time everyone else is reporting (and reacting) to something, the thing is already done.


Hearing about a hot stock? Everyone else just heard the same news, so now you’re going to buy too high. Hearing about a hot housing market? Guess what, you’ll pay more than you should, because everyone else is moving there now, too. Same with “hidden-gem” travel destinations that aren’t hidden anymore, not once CNN and NYTimes report on them.


That’s why, too, over the past couple of years when everyone rejoiced about the seemingly endless upside to stocks and NFTs and art and watches and home-sale prices, I had a bad feeling about things. It’s my contrarian nature.


Here’s why I bring this up: If everyone says that we’re on the brink of a recession, they’re thinking that in a month or three, they’ll have data to back up what they’re predicting – data that’s based on what’s happening today, at this very minute.


News that’s based on past data isn’t news, it’s just data

When it comes to the bad news, then, in some ways, I think that the news feeds are really just preparing us for things that we already know, things that are already in front of us. Sometimes, the truth is the obvious thing, the thing that’s right there.


And the beauty of it is this: You’re in it now and you’re doing alright, really.


Now’s a great time to find big opportunities

Instead of jumping on the bad-news bandwagon, then, ask yourself about the direction things are headed in, how long things have been going in that direction and whether we’ve been down that road before. Chances are we have, so pay attention (aka, read the tape) to learn how this time may be different.


Think of it in terms of the housing market: Housing crashed in 2008. Did that mean it would never come back as a solid investment? Of course not – but headlines then and in the first few years to follow might have led you to believe that. Wise investors paid attention: They leveraged the obvious – that housing would always be in demand – and when everyone else sold, they bought.


Thousands of mom-and-pop landlords are now millionaires because of it.


So, rather than listen to all the babble, learn how to use the information at hand to better predict future probabilities.


Here’s an interesting exercise: Here are five time series that I’ve laid out for residential real estate. Using this simple outline, how can you dig a little deeper into historic shifts and use that insight, as well as what you know to be happening today, to predict short- and longer-term trends in residential real estate?


It’s fun to play around with different scenarios and hone your tape-reading skills – and done well, it’s a potentially lucrative exercise, too:

  • 1995 to 2007: The era of “easy money,” when banks approved mortgages to everyone who had a pulse, often approving several mortgages to financially precarious borrowers.

  • 2008 to 2017: Fraudulent or otherwise unethical and unwise lending practices led to the collapse of the residential real estate market with valuations and sales prices tanking by as much as 50%, setting off a spin-out throughout the economy. Then, over the next decade through the magic of historically low interest rates and better lending practices, the housing market recovered – and then some.

  • 2018 to 2020: After several years of growth, the U.S. economy was poised for an overall slowdown and reset, with Q12020 looking like a recession was looming, which would likely slow down the housing market, too.

  • Q22020 to Q2 2022 (aka, Covid-19 era): In essentially no time at all, the residential real estate market was flipped on its side, turned inside out, brushed off and back at it for two years filled with anomalies, including record-setting sale-price and median-price increases just about every month of the pandemic.

  • Q32022 to now: The wild ride of the first two years or so of the pandemic have left the U.S. economy with a liquidity hangover. As the Fed works to ease inflation, interest-rate increases, coupled with still-high asking prices, are putting a damper on home sales in many hot markets.

How do you leverage this information?

Begin by asking what’s the same – people still need housing, for example, and that’s likely not going to change, ever. Figure out a few more points where you find consistencies. Then, if things always come back but they come back differently (as I like to say), what are the key differences (including behavioral patterns and/or common beliefs), will they last and what are the impacts on the asset class (in this case, housing)?


When you can answer those questions, you’ll find opportunities (and you can apply this to any asset class that you want to explore).


Look for opportunities

When just about every news feed says that the sky is falling, I encourage you to look up. The sky is the sky and it’s not going anywhere, so find the silver linings in the clouds. Find tangible, smart opportunities now and make the best moves that you can.


It always comes back, but differently. And if you can accurately predict the differences, then you win.


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