Athletic Confidence

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I rode around the Big Island last week and had a chance to run through my thoughts about the nature of sport.  Specifically, I was exploring why cheating gets us excited.  A few years from now the scandals of 2011 will fade but the challenge of living in a world with different cultures will remain.

When I find myself getting stressed about life, I ask myself, “What do I want from this situation?”  The bottom line with regard to elite sport is entertainment.  The emotional conflict starts to arise when I mix my goals from participating with my goals from observing.  As an observer of sport, more and more, I feel like we’ve been punked.

However, feeling like I’ve been stiffed doesn’t do a whole lot other than spoil an otherwise excellent day!  To sort through the underlying emotional cause of my ‘disappointment’, I consider the advice, “when you think someone has deceived you, ask yourself what you desired from them.”

There were a lot of life lessons that I took from my elite athletic career.  Two that stand out are:

  • Work and persistence will make you better than you ever thought possible.
  • Teach yourself how much is enough and how to say no.

Those two lines capture much of what’s required for a life with meaning.  If you add the Golden Rule then you have a straightforward code for self-improvement.  

That’s all well and good but cheating still irks me.  The only effective antidote is coming back to my lessons and staying focused on the life I want to lead.

As an advisor, I would add two additional points:

  • Trust your own experience.
  • Question reality.

The last dozen years in triathlon have taught me that the only information in which you can have full confidence is your own.  Even then, be cautious as methodology, devices and error will have an impact on results.

When you see others performing at a level that defies your personal reality, enjoy the performance but be true to your own situation.  

Performance that falls far from the mean is typically due to chance (genetics) or outside influences.  For this reason, base your approach on what you know is effective for you. 

Fill your peer group with friends that reinforce the life you want to lead.  Our character trends to a similar level of our inner circle.

Worry isn’t work (and work is far more important than worry).

g

 

Understanding Ironman Performance

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Today, I’ll share some ideas about an area where I have direct personal experience.  What it takes for regular people to go from ordinary to extraordinary.  Like you, I enjoy reading the blogs of top coaches and world champions.  However, your body might have more in common with my journey than what we might read in the magazines.

On Tuesday, I shared some thoughts on good vs great on the main Endurance Corner site.  One of the neat things about life is we never really know what is going to happen until we give it a shot.  For a guy that never thought of himself as an athlete, triathlon was a fantastic find.  Keep searching until you find your thing!

January is the month where we can come up with really silly ideas.  Two errors that I’m seeing a lot:

#1 – the desire for an “intensity block” // nearly always with an athlete that’s been sick, or injured, or both (!) in the last eight weeks.  It must be an occupational hazard that triathletes dream up crazy stuff when they are flat on their backs.  I’ve been there, myself.

#2 – requests for validation for training at higher heart rates // “because I’m rested.”

To those requests I’ll remind you that you can only sharpen the base that you’ve created (via @alan_couzens) and heart rate is a proxy for stress (via me).

If you want to improve then you need to be thinking strategically about what’s required to achieve your objective.  Mindlessly blasting yourself because you’re scared that you’ve detrained a little is a complete waste of time.

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Let’s review the physical requirements for athletic success:

  • The ability to apply force in a sport specific manner
  • The capacity to sustain the application of force
  • The skill to perform the activity quickly

In Joe Friel’s performance triangle, he calls these force, endurance and speed.  Remember that force needs to be specific; and speed is quickness, not velocity.  

To those three I would add – durability – the capacity to sustain load over time.  To enhance our durability, in the winter, we can:

  • Avoid material weight gain
  • Improve whole-body strength
  • Limit losses of lean body mass – it might not matter in 2011 but it sure will in 2031
  • Adopt a high frequency, moderate intensity, run program

You’re going to be tempted to recover your late season fitness.  However, if you chill out and focus on the basics then you are guaranteed to get back there.  The only thing that can screw you up is illness, injury or burnout.  If you can simply stay-in-the-game you’ll return to last season’s performance.  It’s normal, but irrational, to expect that it’s all gone unless you take drastic winter action.

By rushing, you’ll be right back to your “decent” fitness far too early and limit your ability to breakthrough to a new level.  

Do you have any (!?) idea about what’s required to achieve your goal performance?  Most of us know more about what (we think) it takes to win Ironman Hawaii than to achieve our own goals.

I’ve known for a long time that I needed to be able to output 275 watts for four hours (swim/bike/run) to get under 4 hours for a 70.3 race.  That was a key consideration for what drove my training in 2009/2010.  

Do you know what it takes?  Are you putting the pieces in place for what it takes?

Ask the questions because spending the winter seeking to bump your FTP by 7% might be a complete waste of time.  You’d probably be better off with a few really big swim weeks; or getting strong; or improving your run technique; or just about anything else that’s liked to the fundamentals of IM performance.

Work in a way designed to improve the specific result you want to achieve.  I do a lot of general preparation because it is the best way for me to absorb load and prepare myself for the sessions required for success.  It’s also really safe – I get tired, I bounce back, I repeat the process.

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On Tuesday, I did my first benchmarking test of the year.  The results are above, and typical for when I’m de-trained.  The test is simple, start at a low power level (125w in my case); use 5 min steps; and make step height small enough so you get to “see” each intensity zone (15-25w for most of us).  Note your average power and max HR for each step.  Also note your breath and effort markers as intensity increases.

In-season, I’ll get an extra 25w for each step of the test.  For example, I’ll have a max HR of 120 bpm at 200w (rather than 175w, last Tuesday).  

Each time I test, it’s a little depressing because I have lost so much performance.  If I wasn’t used to this process then it would be tempting to put in a layer of highly intense training to recover my “lost” top end.  Frankly, this is where your ego, and your powermeter, screw you up!  If you are chasing last season’s numbers then your consistency will suffer (especially if you’re a big unit).  If you have been sick or injured in the last eight weeks then you are haunted by the performance of last season and over-doing-it.  I guarantee it.

It’s clear to me from perceived effort that all my zones have dropped 30-40 watts… …and I had a week long training camp in Tucson to start off January, as well as riding across Florida in December.  

I’d probably be down 50 watts if I’d stayed in Boulder the whole time.  FWIW, I dropped 50 watts across the board when my daughter was born in 2008.  Interestingly, they all came back over the following 18 months and I had the fastest bike splits of my life in 2010.

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In 2011, my main goal is Ironman Arizona.  An average power of 240w will get me a great result.  I know that I’ve had good results with power outputs in the low 220s.  That knowledge places the test in a different light.  “Raising my roof” merely makes me tired.  For Arizona, what’s going to make me fast is the seven bullet points above – specifically the capacity to roll 200-260w of output for nine hours.

Ironman is about the depth of our fundamentals combined with the total load that we can handle.

Our best competition knows what needs to be done.

Do you?

Rental Property Economics

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In May 2008, I wrote up an article about my search for an investment property – makes interesting reading about the state of the market, as I saw it, back then.

My criteria in mid-2008 (just before we hit-the-wall) were:

  • Climate opposite to Boulder, CO
  • Would enjoy using during vacant periods
  • Less than 1% annual holding costs
  • Forecast net yield (after all expenses) 10% over treasuries
  • 50% capital upside over a ten-year view
  • Entry price less than $200 per sq foot
  • Superior location in a prime destination
  • No leverage purchase — don’t reach financially

To a property guy, “prime Arizona” is Scottsdale not Tucson but… “prime” for me means prime cycling and friends!  If that means I trade a little capital appreciation, then I’m OK with that.

Given that I’ve been explaining the Tucson property market to my pals, I thought that I’d run through the case study for you.  When all the smart money says that a market is going to fall 20%, it’s a good time to consider buying.

I’ve been looking at Tucson for three years, mainly to address my goal of winter cycling fitness.  While I’ve had great success with seasonal migration to Australia/New Zealand, it is a very expensive option for my family.  So I’ve been looking to change my winter cycling “cost” into property investment “income”.

Because of my personal, and corporate, position, my downside is a lower cost location to ride with my pals.  This is where my business (Endurance Corner) enables me to protect my downside scenario.  I know other people that do similar things – by locating their company’s office inside a commercial property deal.  You can often create strategic benefits to your investment life, from your working life.

I had considered buying a house in Tucson (still would like to) but the holding costs are too high and they are far tougher to manage for investment income.  I even know the exact house but can’t bring myself to increase my personal overheads.

When adding up your uses of cash be sure to include:

  • Purchase Price
  • Transfer Fees
  • Taxes – I pre-fund the first year in my mind
  • Insurance – if you pay HOA then the external building is probably covered, but you’ll need coverage for the inside and your fixtures/fittings/furniture
  • HOA Terms – most places have restrictions on property use, read these as they can bite you in the bum – similar to taxes, I pre-fund a year’s worth of taxes in my calculations.  Make sure the seller is picking up HOA and tax arrears on the property.
  • Furniture – depending on taste, you’re looking at $5-20 for a reasonable specification.  My advice is “under buy” on furniture for a rental property.  It will get trashed and it’s worth NOTHING if you have to sell it.  If you buy more than one condo (for investment) then consider leaving one unfurnished so you have a fall back in case you need to unload one of your units.
  • Repairs – I’ve been looking at foreclosed properties.  Often these have damages and require extensive repairs.  Estimate the cost to repair, double your estimate and subtract that from your bid price.  Also, double the time that you expect the repairs to take.  Budget your holding costs (HOA, taxes, utilities) for the extended repair period.
  • Closing Costs – about $1,500 for a standard completion, seek to split these with the vendor.

Taking all of the above into account, Tucson is currently selling for ~$70-90 per sq ft (furnished).  That’s cheap.

It’s cheap for a reason, there are relentless foreclosures because mortgages are oustanding at $150 per sq ft.  While the foreclosures work through the market, there will be no capital appreciation and it will be near impossible for a non-bank owner to achieve a decent price.  

When estimating your prospective return remember to include:

  • Water – often covered by your HOA, which surprises me in a desert.
  • Telephone / Cable – if you go for direct TV make sure you can mount the dish with a southern aspect and your HOA allows dishes.  Have the Direct TV guy wire the dish into your cable system (already wired in your condo probably).
  • Electricity – if disconnected allow for getting a city permit to reconnect.
  • Appliances – if missing then make sure your dryer door will open when installed – we had a little snafu with on of our purchases.
  • Vacancy rates – take whatever vacancy rate you think you can achieve and increase it by 25% — still OK with the deal?  Also, how are you going to rent the property off-peak?
  • Own use periods – Southwest has $49 one-way flights to Tucson from Denver.  Sounds cheap, but… $50 bike fee each way and $70 per week parking fee (for my car at the airport).  So it’s a minimum of $270 per trip for me to head down.  Closer to $500 with taxes and a car rental.

Other issues:

  1. Make sure you’re clear with the agent about your intended use – some foreclosed properties are sold on the condition that it is our main residence.
  2. To get the best pricing, you’ll want to offer a cash deal, quick completion and buy on a “as is” basis.  
  3. It is very tough to raise debt finance for investment property but it won’t be that way forever.  While I wouldn’t count on it, I suspect that money to refinance will be available down the road, after you have a three to five year track record of rental income.  Within my own projections, I can see a scenarion 
  4. What can go wrong – consider your exposure to long vacancy periods, fire, theft, furniture damage, and aircon bills.  You will get hit with all of these eventually.
  5. Banks are under pressure to unload foreclosed properties and bankers are handling a huge number of transactions.  Therefore, it makes sense to increase your margin of safety with your bids.  As we move out of peak season, the banks know that they will be looking at HOA, taxes and maintenance for the entire low season.  Mid-summer could be an excellent time to pick up SunBelt real estate at highly attractive prices.

Remember that property is “easy in” but “difficult out.”  Make sure you are able to hold for at least five years.  It could be a rough ride but it looks like a good bet to me.

Tweet me any follow up questions and I’ll try to cover.

Disaster Scenarios

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I wrote this following the Four Mile Fire in Boulder.  I held off on publishing out of respect for the local people that lost their homes in the fire.  This piece is a reflection on my life and not connected to the fire itself.

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I was placed in an interesting position recently when we were told that we might have to evacuate our house in a few hours.  There was a nearby fire and the forecast called for sustained winds blowing directly from the fire to our neighborhood.

We never know what we are actually going to do until we’re put in a situation.  This is why it pays not be placed in situations where we might make a decision we would regret!  Avoidance is an effective strategy for enhancing an ethical life.

There was no avoiding the fire – it ended up burning down close to 200 houses — so it was interesting to experience my reaction.

My first reaction was to wait and think a bit.  What’s in the house that would be a pain to replace.  I whacked my tax records, checkbooks and ID into a small suitcase.

Next up was borrowing Monica’s phone and wandering around all the rooms, with Lex in tow, and photographing everything that we have in the house.  If the place burned to the ground then that would help with the insurance claim.

Insurance gives me considerable piece of mind.  I have comprehensive policies that cover: my family’s health; general liability; our house; and any material assets.  I favor high deductible policies because my main concern is Black Swans.  I spend a lot on insurance but it’s worth it for peace of mind.

So with the house documented, Monica/Lex secure, and a bit of time to think… I couldn’t come up with much else that mattered to me.  That surprised me.  What surprised me further was a thought that I’d rather have a check in my hand for the value of my possessions than my possessions themselves.  It would be an inconvenience to have my life burnt to the ground but strangely, I felt relieved at the prospect.

This really drove home the value of insurance for me.  Also, be sure to read your exclusions/limitations on your policy.  In the past, I’ve caught myself taking comfort from a policy that didn’t cover what I thought it did!

Zero hardware reliance — the other thing that helped relax me is having set my life up so that I can run everything from any computer in the world.  I’m more efficient on my main machine but I have zero reliance on hardware.  If my home office was levelled then I could be up and running by tomorrow morning.  It took effort to achieve this but the feeling of relaxation, when faced with a disaster scenario, was an unexpected payoff.

The lessons so far — high deductible, comprehensive insurance and off-site backup for all digital info.  

I should probably scan up the documents that I felt necessary to put in my little suitcase.  Then I’d be in a position to grab my ID and walk out the door with my mobile phone.  

Holding hands with Lex & Monica… waiting to see what happens.

g

 

Big Steel Challenge – Opener

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I’m not going to blog each workout but this is a good example of a base period strength session where I apply myself.  I’ve been prepping for about six sessions using the protocol that you saw last time.

173.5 weigh in

  • Squat 23@45′;25@100’x2
  • Push-ups 20;20;20;20;20;20;20; Convert @33%
  • Leg Press 25@100’x3
  • Single Leg Press 50’@10/10/10/10
  • Standing shoulder press 45’@10;10
  • Standing cleans 45’@12;12
  • Leg Ext 12.5’@15/15/15/15;25’@5/5/5/5;
  • Palms away chin ups 6/6/4
  • Dead lift 100’@15;15
  • Standing straight arm 13’@30/30;30/30
  • Single leg calf raises 12/12/12/12; Convert @10%
  • Single leg hip bridges 12/12/8/8/4/4; Convert @15%
  • Seated row 50’@20;70’@20
  • Dips 5;5
  • DB pullovers 15@10′;15@15′

41,290 lbs in about 45 minutes.  Probably about what a powerlifter does in a single exercise!

Will feel that on Monday.

Understanding Asset Allocation

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This week, we’ll dig a little deeper into the questions that I ask myself when allocating capital.  I created the chart (above) to show the difference between my optimal, and my actual, capital allocation.  Similar to a business plan, or training strategy, the optimal plan isn’t always optimal.

First, let’s examine the terms.  If my SOLE objective was investment return then a reasonable strategy to follow would be:

  • Drive personal expenses as low as possible;
  • Invest in broad index funds with low fees; and
  • Keep whacking cash in the funds on a monthly basis.

Funds that I’d like for that purpose might be Vanguard (Total International Stock Index; Total Stock Market Index; and Total Bond Market Index).  The main thing that I’d need to figure out is how often I wanted to rebalance my portfolio.  This strategy is about as close to a sure thing as you can get over a lifetime.

For many people that I come across, this strategy would be far, far better than whatever else they could dream up.  For a population of investors, it is the optimal solution.  As a group, we can’t beat the average — we are the average.  Additionally, when we take an average return and overlay standard financial advisory fees, and transactions costs… an active strategy is doomed to underperform.

My current personal allocation is a bit cryptic, so I’ll explain:

  • Cash – easy one… that’s capital waiting to be allocated at some stage
  • Real Estate – I wrote about Real Estate Valuation before Christmas
  • Nominal – assets that I suspect will hold their absolute value; as any increase in value will be balanced by their cost of ownership.  An example would be my house (when I factor in taxes, insurance, maintenance).  I’ll end up getting back what I paid for it.
  • Psychic – assets that make me happy, or enable me to execute my life plan in harmony.  These include: depreciating assets (bikes, cars, RVs, trailers) as well as assets like art/jewelry where it’s difficult to justify any financial rationale for their purchase.

Why do I have half my net worth sitting in the Nominal/Psychic category?  I do wonder at times!

The simple answer (or rationalization) is life isn’t solely about financial return.  What I’m seeking to optimize is a life with meaning, rather than a number when I die.  That said, I over-invested in my house and given transaction costs/hassle factor/psychic returns… it’s too painful to change course.

The reason I like Real Estate has to do with information and cycles.  Like all markets, mortgage and property markets move in cycles.  Right now they are cycling down.  The unique thing about real estate over, say, stocks… is the opportunities for (me to have) superior information.

That said, even if I am right, with agent fees on real estate… as an asset class… it is a lousy place to be a trader.  So, I’m not looking for trades, I am looking for reasonable deals with a fair return.

So what’s the right answer for you?  I’ll offer four tips.

  1. aim to be reasonable, rather than right.  You don’t need to hit a home run, you do need a reasonable, long term strategy.
  2. any strategy that requires lots of change will prove sub-optimal due to taxes, transaction fees and our collective inability to outperform each other.  If you happen to “win” then you got lucky with your speculation.
  3. understand, deeply, what makes you happy and what causes you pain.
  4. invest on the basis that, collectively, we suck at forecasting.  

Quirks that help me stay happy:

  1. Movements in the value of my real estate are hidden from me.  What I see is the rent checks coming in.  
  2. I set my expenses up so that I can feel good about writing checks to my friends and local businesses.  I write checks to Monica and my financial assistants and they handle paying bills that might cause me irritation.  When I go on holiday, Monica pays for everything — together we agree an overall budget then I remove myself.
  3. If I buy a low return asset then I make sure that it has a huge psychic return for a member of my inner circle.
  4. I treat myself with time, not trinkets.  My luxuries are training with friends, writing and reading books.

If you are deviating from the optimal plan then be wary that you aren’t chasing return so that you can consume more.  When things go wrong, it’s nearly always borrowed money combined with a desire for unreasonable consumption.  

Similarly, if you are an endurance athlete then use this exact rationale to examine your relationship with training stress.  Injury and burnout come from being greedy.  The patterns that repeat in your training life have already dictated your current life situation.  In this sense, past performance is very likely to indicate future results.

While we are motivated by consumption, a life with meaning flows from service, personal excellence and harmony.

g

The Big Steel Challenge

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Over at Endurance Corner, we were looking for an idea to spice up our winter.  So for January, we came up with the Big Steel Challenge.  Goal is simple. Lift as much weight as you can in a month.  We had AC run the math on a few popular lifts to arrive at conversion factors.

Just in case you want to try, here’s the scoring from a sample session that I did yesterday.

Weigh In = 171.4 lbs

  • 18 palms away chins = 3,085 lbs
  • Squats, 15 w/ bar and 40 with 100 lbs = 4,675
  • 95 push-ups score 5,428 lbs with 1/3 body weight factor
  • 40 reps of leg press sled 100 lbs scores 4,000 lbs – ignore sled weight due to 45 degree angle
  • 40 reps of single leg press at 55 lbs scored 2,200 lbs
  • 80 single leg extensions at 12.5 lbs scored 1,000 lbs
  • 48 single leg calf raises scored 823 lbs converting at 10% of body weight
  • 15 dips scored 2,571 lbs
  • 40 straight arm pulls on the cable cross scored 1,040 lbs
  • 20 reps of 65 lbs dead lift scored 1,300 lbs
  • 40 single leg hip bridges the conversion factor for these is still under consideration

Roughly, it took 28 minutes to shift over 25,000 pounds.

Shifting 50,000 lbs per week, using only an hour of my time… That has to be the single greatest return on investment in my entire program.  I’m not talking about an athletic return of being fast at forty.  I’m talking about a life return of being fully functional at eighty!

Follow along on twitter and I’ll tweet up a google doc where we can track ourselves. If you need any tips then tweet me or @Alan_Couzens and we’ll help you out.

With a bit of luck, I might get over 250,000 lbs for the month!

Four Ways To Improve Your Life

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When I think about the choices that have had the greatest impact my life, they stem from being able to follow a path of personal excellence.  Excellence can seem a distant quality, probably because our flaws are most visible to ourselves.  Consider these tips as stepping stones towards your path of personal excellence – as Coach Wooden said, perfection is impossible but striving towards perfection is available to everyone.

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TECHNOLOGY

The single greatest change I made this year was improving my relationship with technology, in general, and email, in particular.  The changes I’ve made have given me an extra 500 hours per year (!) of available time, which I chose not to fill immediately.  Here’s how I did it:

Acknowledged that I was hooked on the reactive nature of email.  That was a big step.  I need to discipline myself not to check email constantly.  It’s a huge time sink.

When I check email – I have four actions that I do:

  1. Unsubscribe/filter/delete – I unsubscribe from as many automatic emails as possible (if you miss them then operate on a go-to basis).  I set up filters for repeat emails that I want to batch review at a later date (athlete workouts, financial notifications, subscriber updates).  I also set up filters for banned senders.  I’m running two levels of spam protection software (SpamSoap and Mail Client).
  2. Move To Action – For items that require me to think, or type more than a short answer, I move to an Action folder.  I batch process these (mainly on Wednesdays and the Weekend).
  3. Reply Immediately – There are some emails that are time sensitive – I reply to those immediately.  Using my iPhone for gMail has proven to be a blessing because I don’t have the keyboard to over-reply.  I pause, think about what the writer needs and reply directly.
  4. Refer – As I wrote in my Structuring Your Business article, we’ve set up a team forum.  This leverages both the expert replies to our team as well as the combined knowledge of the team, itself.  Its proven to be a high effective resource for improving knowledge and leveraging everyone’s time. 

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OPPORTUNITY

The next tip stems from a shift in my business and investing philosophy.  In 2010, I deepened a choice to shift my focus towards creating opportunities for people to use their skills successfully.  When we founded Endurance Corner, the original motto was “helping people help themselves”.  The method has changed as we’ve learned more about ourselves.

I’m still very focused on cash flow – however, I think beyond pure profits and use my time/capital/energy to support the team in making positive changes in their life.  This belief drives many aspects of my own life, including asset allocation.  When I moved to Asia in 1993, I was advised:

  1. Be willing to make less money to maintain your principles; and
  2. Learn, succeed, then return home.

Seventeen years later, the wisdom of those tips is becoming more apparent.  By the way, Bogle’s book on Enough, is as good an explanation as I’ve read.  Having completed Mr. Bogle’s book the week before riding Hillsboro Beach to Jupiter Island made the message even more apparent.  The contrast, of the strip on Daytona Beach vs the castles of Palm Beach county, reminded me of pre-revolutionary France.

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STILLNESS

I’ve continued to find it difficult to improve my listening and this is probably because I’m not focusing on the step that comes before listening.  So, I’ve been trying to cultivate stillness.  I’ve found that I listen best when my mind is still.  Five tips that help me reduce the noise in my life:

  1. Turn off the television/computer
  2. Mute/power down the phone
  3. Exercise without music
  4. Schedule less
  5. Walk rather than drive

My relationship with technology will remain a focus.  There’s a lot of upside for mental clarity if I’m not filling my head with my twitter feed every eight minutes!

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SHARING

My ride across Florida last week made me realize how much of an outlier I am, as well as the sheltered life that I lead.  The basis of populism (dismissed in my peer group) becomes clear when riding Key West to Panama City.

As endurance athletes we have unique definitions of fun as well as our fair share of idiosyncrasies – (lists and schedules for everything). I remind myself (with a list and schedule, of course) to be willing to compromise to share experiences with people that are close to me.  I allocate my time deliberately and share fun things with the people close to me.  This requires effort as I’ll simply work, work, work – if I don’t schedule down time.

Looking at the big picture, it all boils down to:

  • reduce noise;
  • serve others; and
  • demonstrate love.

Happy Holidays,
G

Valuing Real Estate

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In the property markets that I follow, the second half of 2010 saw a material change in price expectations. Asking prices as well as achieved prices are heading down, significantly.

A number of factors are driving this phenomenon:
Time: our memory of the past is dominated by our experience over the previous three years.  The property market is in its third year of poor performance.  As a result, we are starting to trend the recent past to future expectations.  While things have been awful, I don’t think that awful will continue indefinately.

Cash: refinancing became difficult in mid-2008.  Many owners have been writing mortgage checks for the last 30 months and each of those checks can cause a little bit of pain.  Foreclosures and unemployment remain high – more pain.

Sentiment: deals that are being completed, in all markets, are being done at 25-60% off peak values.  Residential real estate is very much a word off mouth market.  While people used to brag about how much their property was worth, current chattering centers around repossessions, downward price adjustments and low entry prices.

Availability of Debt: I dropped by my bank this week to talk mortgage and business loans.  Suffice to say, it is a very difficult debt market right now. Lack of funding drives prices down.  Remember that money will not always be tight.

Expectations for residential property are as bad as I can remember.  The last time things were this negative was 1990, when base rates were in the teens and I was working in London.  Interestingly, imagine what would happen to the market if long rates return to historical averages?  It would be a short term disaster and a fantastic buying opportunity.  If the big moves in rates (over the last three days) continues then there will be a lot of pain around.

Why buy real estate?
The Great Inflation of asset prices ran from 1992-2008 in most markets.  If you are under 45 then those market conditions are the only ones we have ever known.  It’s worth reading a copy of Irrational Exuberance to understand how assets normally behave.  Pay particular attention to mean reversion of returns and long term rates of real return.

I want to own real estate for a number of reasons:

  • The option value of land;
  • To receive a net yield; and
  • As a store of real purchasing power.

Personally, I benefit through the option to downsize where I live by moving into one of my rental units.  This option is not available with a bond/stock portfolio.

What’s a reasonable net yield?  Ten year US govt bonds are ~3.5% (big moves this week).  Safe but no upside in the value of your capital.

What I do is compare a range of bond benchmarks to the prospective net yield of the target property.

When I calculate yield, I factor in the broken furnace, the roof repair, the tree trimming, the radon mitigation, the gas leak with the stove, insurance, taxes and vacancy period.  Many people forget about these sorts of issues and overestimate their true net CASH yield.

With properties that I bought in 2010, my net cash yield for 2010 will be zero.  That’s ok, as it links to my current year benchmark (check your savings account yield).  My prospective net cash yield is about 3%.  Not massive but considering my alternatives, and goals, sufficient.

Now my yield expectation is 3% but I priced the deals at 4-10% to achieve that net.  That is my margin of safety and reflects that, even with appropriate due diligence, stuff always pops up when you shift from buyer to owner.  By the way, stuff pops up in all types of markets.  Remember to insure your Black Swans.

The target yield that’s appropriate depends on:

  • Your alternative use for the funds;
  • Your view on the prospects for the people that live in that neighborhood and the local economy; and
  • The amount of land with the property, alternative uses for that site and redevelopment/subdivision opportunities.

The better the prospects, and the greater the option values, the lower the current yield I am willing to accept.

There are no fixed rules but with research and common sense you can decide on a fair deal.  That fair deal is your valuation.  The amount under valuation (that you pay) is your margin of safety.  Try to arrive at your valuation independent from asking prices.  What I do to figure my target yield for different types of deals.  Then I head to the market to find those deals.  I am selective with the type and look in a narrow geography (down to specific streets and developments).

Be careful with property investments.  They are easy to get into and can be difficult/expensive to exit.

Applying Your Personal Plan

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This week’s article comes from an offline discussion with Mike about my personal planning writing.  What started the discussion was Mike’s question, “tell me more about how you build your personal plan.”

You can find a historical summary of many years worth of Personal Planning writing via the search function over on the EC site.  Here’s the article summary as well as the main post on my personal review list.

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– So you have your priorities set.  How do you break down the year into sections that you review?  You mentioned in one post that only after six months do you have enough time to actually track meaningful progress. How do you establish a feedback loop?  Are there people involved?  

I try to do 1-3 things in each 6-12 month block and I make it REALLY simple.  In my experience, successful people have the ability to consistently focus on a limited number of things that have a direct impact on getting stuff done.  The high achievers that I work with can tell you exactly what they are trying to do (Clarity) and structure their lives to get it done (Simplicity).  

When I work with folks that struggle to get stuff done, it’s nearly always because they are seeking to achieve a shopping list of items.  Just because it’s simple, doesn’t mean it’s easy.  Let’s use me for an example in three areas.  If you’re reading this blog then we’re going to overlap in at least one, I hope.

Athletic Performance:
  • Train Daily
  • Get Up Before 7AM
  • Don’t Drink
If I can do that then there’s only a handful of 40+ athletes in the world that are likely to beat me.  Clearly it takes much more than just these three for me to perform.  That’s true but I already know what it takes.  In triathlon, I need to focus on the items that might screw up my ability to perform.  So my athletic performance list is really a “not to do” list.

Financial Security:
The first two points cover what’s required to run into trouble in life – excessive spending and leverage.  The final point is the most fundamental aspect of investing (and life).  The Key Five of Investing (article from October) are my way of ensuring that I have a suitable margin of safety. I’ll come to valuation in due course.

Successful Marriage:
  • Be Kind
  • Create Frequent Opportunities for Communication
  • Do Fun Stuff Together
We avoid friction by doing the opposite of what causes friction.  This involves an element of compromise but, if I think about it, it’s not that hard to… to be kind, communicate and have fun with my wife!

My feedback loop is daily/weekly/quarterly.  I like written plans and the tactics that I use are so simple that it’s easy to remember them.  If I’m trying to change direction then creating signs (I see daily) works well for me.  I had a sign that broke down an 8:29 Ironman visible for two years before I managed to achieve that goal.

I also think you want to understand why you have goals.  Working towards goals shapes the type of life I want to lead on a daily basis.  It’s not about the goal.  It’s about enjoying the life that’s required to work towards the goal.  My life satisfaction is linked most strongly towards knowing that I’m on the path, rather than hitting the destination.  Simple, clear goals enable me to feel like I am making daily progress.

At times, I can miss my former life as an elite athlete.  I used to think that it was the training that I missed.  With the benefit of a several years of perspective, I’ve realized that what I miss is the clarity of purpose and daily victories that workout completion gave me.  The most rewarding periods of my life have been characterized by clarity of purpose and simplicity in execution.

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– I’d love to hear your thoughts on building a personal brand within a corporate environment.  What are the things that people with a great brand to that other with a poor brand don’t?  

Whether we realize it or not, we all have a personal brand.  When I was younger I was far from perfect!  My manners weren’t great and I was aggressive.  I used to joke that I competed on all fronts all the time and wasted a lot of energy.  Now my focus is helping my inner circle achieve their goals so they support the life I want to lead.  Let other people be successful so you can lead your life successfully.  Much different focus than beat everyone, all the time!

When I started in finance, I had three things going for me: I was reliable; worked hard; and was cheap. I did a tremendous amount of work for the partners and made their lives easier with little cost to the firm.  My goal was productivity, not promotion.  I ignored politics and did as much work as I could manage.

Interestingly, I probably learned 80% of the technical aspects of my job in the first two years I was at the firm.  Flipping that on it’s head, I made 80% of my financial return from private equity in my final two years at the firm. I ‘sold early’ with my financial career and left a lot of money on the table.  That said, in terms of my life, I timed my departure very well for participation in elite sport.  The guys that hung around aren’t going to be beating me at any triathlons (and my net worth will never approach their level).

In terms of my coaching brand, the approach is identical.  Good advice, offered reliability to the public.  To spread, the message must be authentic and effective — I write about what I really do and it works.  Good brands market themselves.

Focus on reliability above all else — it’s a fundamental building block of any relationship.  

People with high standards will do a good job of letting you know when your reliability slips — work for those people as they will make you better.  Be open to bad news as that sort of feedback is painful, but essential, to improve and tailor your brand

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– It looks like you have worked with some great mentors/coaches.  Did you proactively go and try to create such relationships or did you randomly fall into them?  I am guessing that you were very particular in your approach and would love to hear about that.

The initial meeting has often been random but my extraction of knowledge has been deliberate and intense!

Make it easy for your coaches/mentors to work with you — geographically, financially and technically.  I tried to be their ‘best’ client in as many different ways I could muster.  

Do whatever it takes to get alongside the very best teachers and spend time working shoulder-to-shoulder where they have a passion.  My success with that approach, as well as feedback from my students, is why we believe our camps business is so effective for athletes.

When I started in Private Equity I was the lowest paid person in the building.  Likewise, I’ve paid up to $1,000 per day for consulting advice.  The gains from becoming world class are material – don’t be cheap with situations that have the capacity to change your life.  

Money can be effective to get people’s attention but most of us aren’t motivated by money alone.  That’s the reason for my advice on figure out where your mentors have a passion and do that passion with them.  World class people are surprisingly easy to track down.

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