Spicer Matthews

Wall Street analyst types are often “going undercover” to see how a business is doing. They might go to Home Depot and wonder around the store and buy a few items to see how the entire process is going. They might stand outside Macy’s and count the number of people going in and our of the store. All this to get an estimate as to how the business is doing. Over the last few years I have been making efforts to do my own little channel checks. I might not be camped out Macy’s counting people but I like to visit companies I am invested in, thinking about investing in, or competitors to companies I want to invest in. Below I am going to share two stories of my two most recent channel checks.

I love Starbucks. It has been a core holding of mine for a while now. I think they are one of the best runned companies (since Howard Schultz came back). I make every effort to visit Starbucks wherever I go to make sure they are truly consistent (it could be they are just really really well run in the Portland area). In the past 6 months I have visited a handful of Starbucks in South Carolina, Northern California, and of course different locations within my home state of Oregon. Each visit was a warming and consistent experience. It is clear Starbucks is working hard to make sure they have a brand people trust and rely on.

On a recent trip to Northern California I made an effort to visit Peet’s Coffee’s. I visited 3 different locations Cupertino, Davis, and Sacramento. Each visit was not pleasant at all. Getting on the Internet was a guessing game to begin with. Eventually I found out you have to get the barista to give you an access code good for one hour. Once connected, the service was completely unusable (in all 3 locations). In general the employees were not friendly and straight up rude in Sacramento. I found the bathrooms to be pretty gross in all 3 locations. I do not love the coffee but it is ok. It seemed a little burned at the Davis location. Nothing about the Peet’s brand really gave me any confidence. Many of the patrons I spoke with also had negative thoughts about the service and the poor wireless.

I love Amazon.com. I buy almost everything I can from them. Retail, hosting, media, and more. I even own stock in Amazon. I am a very happy consumer and investor. However, what I find so interesting about Amazon is not my consumer joy or my nice gains as a shareholder; it is their business model. In so many ways they have re-engineered traditional business models. The single most fascinating aspect of Amazon to me is their way of monetizing business bi-products.

As an Internet retailer Amazon has to make major investments in data centers. Trust me: Amazon runs on more than just a Linux computer under Jeff Bezos’ bed. They have built data centers all over the world. Normally, this would be a cost of doing business. In order to sell products online they have to build data centers. Using the bi-product of having to build data centers Amazon built a billion dollar hosting business, Amazon Web Services. Amazon leverages their infrastructure and rents the use of this space to web sites all over the world. This is like Best Buy starting a construction company because they are building big box retail locations. Amazon turned what traditionally would be a fixed expense into a most likely very profitable business unit.

I don’t blog much about investing in the the stock market. Which is odd because if you meet me in person I will talk your ear off about where I think the market is going or where I think the best investments are. The digital world might not know what an equities nut I am. I don’t blog much because unlike so many other topics I talk about I don’t see investing as a black or white type of thing. I am never 100% sure I know what I am doing. There are just so many data points. I never know if the data points that are important to me are the correct data points to look at. That is what makes a market, right? If we all were looking at the same data points and we all had the same point of view there would not be someone willing to be on the other side of my trades.

With that said I do not want to be another “talking head” telling the world why I am right and why they are wrong about an investment. More importantly I don’t want to get caught up in the rat hole of defending my thesis. There are already tons of “talking heads”; the world does not need me.

One of the things I hate about people who blog about particular investments is very often you do not know when they make the investment (if at all) and at what price. I love reading about what people are investing in as an idea generator, or as a rough sentiment measurement. Without a time frame, such postings are not really great guidance to what I should buy or sell.

Overview

The point I am going to make in this post is you can use the different markets outside of Real Estate to help with timing your Real Estate transactions. Great timing can do wonders for your bottom line. I have to setup my point so read all the way through. I will put it all together at the end.

To continue my argument, (see past posts), that I believe that at the very least if you are a Real Estate investor you should have an eye on different markets outside of the Real Estate world I am going to highlight Mortgage Back Securities and what it means for the common Real Estate investor.

First lets define what a Mortgage Back Security is, or MBS. More or less a MBS is a bond sold on wall street from the big government backed firms Fannie Mae and Freddie Mac. These loans are originated by banks we all know and love. Then the banks sell these loans off to Fannie Mae, and Freddie Mac in big pools (collections of mortgages). For example (and to keep things simple), lets say Bank of America lent out 100 thousand dollars to 10 people (total of 1 million dollars). Bank of America collected a bunch of fees for putting the loan together (from the borrower), also mostly likely will get to continue to service the loan (charge more fees for the service of collecting loan payments).

Now, BofA will sell this pool of loans to Fannie Mae or Freddie Mac. So the amount of loans BofA is willing to make each week/month/year is almost a factor of how willing Freddie and Fannie are willing to buy the loans.

Once the pool of loans are sold and out of the bank's hands, Fannie and Freddie then bundle the loans up into bigger pools and sells them off on Wall Street as bonds. So when you make your home mortgage payment you send the money to your bank, then the bank send your payment to Fannie and Freddie, and then Fannie an Freddie sends your payment to the owner of the bond. You can learn way more about this process at Wikipedia.

Why should you understand all this?

It is one big chain of influencers; The seller, the buyer (borrower), the bank, Fannie/Freddie, and the bond holder. Each phase of this chain relays on entity below it. So lets look at each phase.

From my first post (Real Estate Vs. Da Stock Market - Part #1) many people contacted me and told me that they disagreed with me. The stock market and the Real Estate market were not the same. Many people expressed that they liked Real Estate, (and made it their "thing"), because they had far more control over the investment. You can pick your tenants, you can pick your lender, you can remodel, and so on. While in the stock market you have no control unless you have the capital to be a major share holder. All you have is the ability to cast your vote in a share holder meeting. While this is true, in fact you do not have much control over the direction of the company you own stock in, you have control over if you own the asset or not. In terms of personal wealth, this is way more powerful than than the direct control you have with Real Estate. Having the ability to liquidate your ownership in an asset within seconds is very powerful. When managing your assets their is two parts; growing your assets, and protecting your assets.

Wise investors can spot a downturn coming, such as the one in late 2007. No one really knows how bad a downturn is really going to be, but a wise investor should know when to shift from capital appreciation mode to capital protection mode. Below are the things you can do to protect your stock and real estate assets in a downturn.

One of the things that drives me nuts, is when I hear people say "Real Estate is my thing", or "Real Estate is what I am into". It is not a drug it is an investment! You buy Real Estate, (as an investment), for it to go up in value and maybe collect rent. Hmmm, that sounds just like buying a stock, and the rent would be the dividend (or even a stock buy back). Real Estate, (from an investment standpoint), is not a way of life. It is not something you are into. It is not "your thing". It is 100% an investment. So many people, particularly young people, don't get that. With this post I am kicking off a series of blog postings talking about the importance of understanding all markets not just the one "you are into".

First of all lets clear somethings up. When I say Real Estate investment I am not talking about your home, or a vacation home. Those have personal emotional aspects; you need a home to live in and you love staying at your ski condo on the weekends. I label these assets as personal property, there is a luxury element you may or may not be paying up for. I am talking about the rental property you purchase, to collect rent, or even flip.

Second thing I want to clear up, I am giving general statements and rough numbers in this blog series. With any investment there is always another side, another stat, another point of view. I get that. This is what makes markets if we all thought the same way no one would buy or sell anything. This is just one man's view. I hope you can share you view points in the comments below.

Lastly, I am not talk to the people that do this for a living. If you are a Real Estate Developer, or a hedge fund manager you have built a business around a particular asset class. While I think every point I am going to make applies 100% to you as well you can make a business case against some of my statements and I might agree with you.

Apple, I want to love you, I really do.  I've even put up with your high prices because your designs are sleek, your user interfaces are nice on the eyes, and you've been on the front-lines of technology advancement on the behalf of users.  At least, you were.

I'm not so sure anymore.  There's no doubt that the iPhone is one of the most innovative devices of the last decade, but the same cannot be said for the antiquated App Store.

The approval process to get your newly designed app is ridiculous.  Apps are not only filtered for content, but in many cases, it takes weeks to get approval for your app to be download by eager customers.  And why?

In today's market of fast-paced and ever-growing e-commerce, being forced to tailor your business model on the requirements of a single channel makes no sense.

Something that has been frustrating me more than anything in the last year. With the slower economy I have been able to spend more time just talking to people; strangers, family, friends, and just about anyone else that has something to say. Being a business person the conversation often heads down the path of success and how to achieve it, but so many people I talk to don't want it bad enough. They would rather talk about it then do it. I am not just talking about building a business. I am talking about getting a job if they are unemployed, upgrading your current job, or starting a business.

Just Get Off Your Butt And Start Building

This spring will be my 10th year in business for myself. By no means does this make me an experts in business but I have learned a few things along the way. There seems to be two type of businesses; explosive and non-explosive. To define this further lets use the example of a sub shop. Once this sub shop gets operating the revenue for the company should be about steady. Of course there are ups and downs but overall there is not one big pay day. Money just seems to come in each month. This would be an example of a non-explosive business. Then there is the example of an explosive business. This could be a Realtor, loan broker, builder, lawyer, or whatever. These types of businesses tend to have big pay days. Money might not be rolling in everyday but when it rolls in it rolls in big.