Style Drift & Mastery

In investing, there's an issue called "The Shiny Object Syndrome" and it's a real problem. It can be very tempting and alluring to explore some new form of investing and / or investment asset class even if it's a strategy or style drift for you and your investment approach.

It can be very tempting to explore these things - and even put capital to work on the play.

Why Investors Engage in Style Drift

1. Your core competency isn't working - what I mean is you are X (you do value-add investing, you do deep value stock investing, etc etc.) and it is not working. It's underperforming versus everything else. It's quite tempting, in this situation, to want to drift styles
2. Y Investments Seem Really Exciting - this is a corollary of the above - you do X, but Y is crushing it. You want to jump on that train because it seems to be working. It's easier to raise capital for it, you foresee better returns, etc. It sort of
3. You are bored - terrible reason IMHO, but it needs to be put out there. You've been doing X style of investing for quite some time, and you don't have that special feeling anymore. You want to change things up.
4. It's Your Personality Type - maybe you're an easily distracted and follow loose threads to unusual places, and that leads you to want to explore and invest in new and unique things that are mentally stimulating
5. Market Cycles & FOMO - this is a close corollary to your core competency isn't working right now, and/or you're watching your friends make a lot of money doing "something" that you aren't doing right now and you want to get in on it
6. Perceived Risk Reduction through Diversification - you think that drifting out of your core competency will deliver some benefit to your investors (or yourself) through the miracle of diversification
7. Overconfidence in Transferable Skills - you assume that because you're great at one thing you should also be great at another
8. Media Hype & Narrative Shifts - you were a deep value guy in the 90s, but technology was very hot and you decided to "get into it". This correlates closely with #1 and my #1 indicated item above
9. Access to Capital or Strategic Partnerships - you source new investors that really want something you don't do. Should you "get into that" space because that's where money is available? For instance - you're a multifamily guy, and you find an investor who really likes you but only wants to do student housing (or industrial). Focus shift?

As you can see - there are many, many reasons why investors engage in style drift. I have personally faced any number of these "opportunities" in my career. The list of "new" investment opportunities I have reviewed are many. Among them:

1. Car washes
2. Laundromats
3. Small business acquisitions (#1 and #2 and others)
4. Acquiring a personal use office building through an SBA Loan
5. Senior Housing
6. Student Housing
7. Industrial & Light Industrial

But every single time, I have to pull myself back to my North Star.

It is simply NOT worth it.

I really think the point is cogent, powerful and important. Style drift is a serious problem. Investors need to focus, and stay focused on, the thing that they are good at and can deliver real value at.

The learnings you gain from time IN the business are dramatic. What you know as an investor with 1 year under your belt in the multifamily business pales in comparison to what you know after 10 years of doing deals and operating properties in the same space.

Investing is still a human driven business. What I mean is this - investors will entrust you with capital (especially in real estate) more than they might to a machine or an algorithm. The nature of real estate is that it's unlikely to move into a fully algorithmic trading strategy. And so human experience and operating prowess will still be very important.

I don't believe that any amount of reading or listening to podcasts can fully prepare an investor for the many intricacies of managing a property or running a business plan. There's a reason we value investors that have "been through multiple business cycles" more. They are (probably) less emotional, they've seen it before, they understand how to operate through it. They understand how to work banking relationships to the best results for their property and the investors. They understand the risks behind the risks because it's happened to them.

What Happens When You Jump Ship?

This deepening (ripening if you will) of experience simply cannot happen as quickly or as effectively if you are dipping and ducking and diving and investing in many different places.

And that's just the effect on your ability in your core competency.

What about the new investment class you've now entered?

If you had 5 years of experience as a multifamily operator and you get into industrial, there is some transference of skill. But you're still a novice at industrial.

So you are;

1. Stopping your forward progress as a multifamily operator, to an extent, by being distracted and,
2. You are a complete novice at your new investment asset, which means you're going to make a lot of mistakes and potentially lose money for lack of knowledge.

Mastery, then, not chasing shiny objects - builds ultimate wealth

All of this is then a passionate argument in favor of staying the course and continuing to delve deeper and deeper into your chosen asset class. Even when it's boring. Even when it isn't working as well. Everything is cyclical, everything comes back, and ultimately your goal is mastery of your chosen field.

And mastery is where you can really reap a whirlwind of profit for yourself and your investors.