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... It's Real Estate, Silly! ...

Why would a technologist turn to real estate?

Well, I did, and here I will share my reasons, which might even carry some lessons others can learn from. Maybe for you, too. It could even inspire some to make changes, so I encourage you to consider this:

Like most over-educated technologists, my career strategy was essentially a stock market strategy: Get a PhD and become a world expert in a universal yet underserved subject area, start a company, build cool technology and software applications, make money to grow the company through selling that software, and go public to finally achieve significant wealth. If the P/E multiple is 10 to 20, then a company that nets a million dollars in a year is suddenly worth 10 to 20 million dollars in equity on the stock market. Now that's wealth! This is a widespread, perhaps the most common, career and investment strategy.

On this strategy, I started my internet bubble company, Sprex, grew it for a decade, and achieved stability. It started before the bubble, and lasted long after the bubble, and achieved many academic, technological, and business goals. But the goal of making a fortune remained far distant.

I decided to reconsider my investment strategy. The investment mathematics of information theory combined with empirical data demonstrate to me that my approach was actually a poor bet: The technology + stock-market strategy is far inferior to a real estate strategy.

Here is the mathematical and quantitative argument.

Because of my confidence in this argument, I engaged myself in the business of real estate.

What does this mean for you?

You should have about 5/6 of your long term investments in real estate! At least, that is how I read the mathematical results and the empirical data. If you have bitten the hook of stock market investment as your primary path to grow and maintain your family's wealth, then you really need to carefully consider my argument. If you can read that with unshaken confidence in your plans for financial success in life, then you are probably one of the many wealthy Americans who have concentrated most of their investments in real estate.

Some do it because they understand the business, and that's a good idea. Some do it because they fear the volatility and sharks of the stock market, and that is a good idea too; and should make you ponder. And some do it because they invest quite randomly, but the performance of randomly selected assets over time also tends to lead to this kind of portfolio balance. If you know a lot of stock market millionaires, you are a rare bird. But I'm sure you know a lot of people that are millionaires simply because they own two or three houses. And if you are one of these people, then you know what I am saying. There are a lot of you out there, and I'm very sorry for letting your secret out.

But if you are like most people, you will have made very different bets, following the suggestions of even the most competent and trustworthy investment advisers. But those bets are in the long run likely to produce greater risk and less appreciation than those suggested by my argument:

the vast majority of your wealth, your actual ownership of assets, should be in real estate.
 

Copyright © 2000-2007, Thomas C. Veatch. All rights reserved.
Modified: October 17, 2007 .