Thinking about the next recession

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One of the key insights in Howard Mark’s book, The Most Important Thing, which I love, is that you can’t predict a recession with any certainty.

All you can do is (i) know that the pendulum always swings back; and (ii) observe where the pendulum is currently.

It’s pretty clear that the pendulum is currently far towards growth.

Equity capital is abundant. Interest rates are low. Amateurs are flooding into my business. Prices, consequently, are high.

So, while I have no idea when the next recession will come, it seems likely to me that one is coming sooner rather than later.

This insight is prompting me to think about how I intend to behave during the next recession, which, of course, causes me to think about how I behaved during the last one.

In 2008-10, one of the greatest real estate buying opportunities in decades, we were just starting out. So, when we bought something, we absolutely, positively needed to renovate it immediately, in order to demonstrate that we knew what we were doing.

That strategy was necessary for us then, but would be a mistake in the next recession.

Instead, the move is to focus 100% on buying properties with great bones / locations at fair prices. Ignore the temptation to get wrapped up in repositioning them. Just buy a ton.

Later, as the market begins to improve, we can begin to refocus on adding value to our purchases.

There’s usually only a short window to get your hands on great buildings at fair prices. As Buffett says, when it’s raining gold, you need buckets, not thimbles.

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