Survival Strategy 5: Real estate is a good long-term investment

Real estate and all businesses that are associated with real estate are going to suffer in the next year or two until things hit bottom. We have too much inventory right now. It has to be used up, and then real estate will recover. Between now and 2025, there are 60 million units that need to be built in American – 60 million new housing units. Immigration and population growth-rates add the equivalent of the entire population of Chicago to the United States population every year.
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There’s a lot of old structures that need to be replaced. That’s going to be a big factor. Real estate is a good, long-term investment. In the next two or three years, it’s going to get worse before it gets better… and then it’s going to stagnate for a while.

When it hits bottom, and this may happen in six months, the big vulture funds are going to come in. They’re going to buy up all the big condominiums, the big office buildings, and they’re going to sit on them because they have the money to sit on them until the absorption levels are such that prices start coming back.

We just saw that happen in Europe actually over the last two years.

JCA: If you’re following the presidential election, you hear a lot of raising taxes, making healthcare contributions mandatory for businesses, raising labor costs. In a global environment, is America all that it’s cracked up to be? Should an entrepreneur really hitch his fortune to the United States in this potential political environment, or is it better to look at countries with a little less drag on private initiatives such as Russia or China or the Cayman Islands?

MM: It depends on what kind of perspective you’re taking, whether you’re an investor or whether you’re an entrepreneur. I’ve been doing global investing as an entrepreneur for more than ten years now, and I’ve learned a lot about investing overseas. There are pluses and minuses to investing overseas.

Generally speaking, the sectors that – and I’m speaking as an entrepreneur – the business sectors that make sense to export are those whose cost depend heavily on labor, producing shirts or growing pineapples or something like that. But most of the industries that America is very good at are the labor cost, the actual brute labor – the labor cost of the – unskilled labor cost, let’s say, is relatively small. So for those industries, I think you can still perform them fairly well in America.

America does have some big advantages. One of the major advantages that you don’t get when you’re overseas – I have businesses in third-world countries – you can’t get good, skilled labor. It’s very difficult. And if you do get good, skilled labor, it often costs nearly as much as it cost in the United States.

So I still think there is an opportunity. As an investor, certainly, I’m so very excited about opportunities in overseas and China and India. Those economies are amazing, and there’s still a lot of opportunity. But in terms of sectors, I would say as a businessman in America I would still be focusing – and not just in America – but I would be focusing on two things.

Survival Strategy 6: Focus on the Right Sectors

*** Resources and commodities
The sectors that are likely to profit from the current recession and rebounding as the recession evolves into a healthier economy. Obviously, in the short run, natural resources, oil, gas, agriculture will be strong for some time. How long I don’t know.

If you’re involved in those industries you’re going to benefit. Those industries are hiring people; they’re expanding; they’re spending more money on advertising. There’s a lot of opportunity there.

In the next phase, over the longer term, I think there’s a more dominant trend that will be affecting our economy, and it will be affecting economy regardless of what happens with the specific economics of a recession or stagflation.

*** Demographic trends
And that is the generational phenomenon of the baby boomers. The baby boomers have always been the dominant force in our culture and our consumer culture, and that’s really what I’m investing in.

And there are a whole number of sectors that are going to profit from this last shift in our lives as baby boomers move from being in the workforce fully, to moving into a situation where they’re moving out of the workforce in part. I don’t think they’re going to move out entirely. The industries that I would be looking at are all relating to retirement, including living overseas, or products and services that relate to retirement.

All products and services that relate to health and well-being that affects older people. In other words, I wouldn’t be investing in rigorous exercise program products anymore. I would be investing in yoga and Pilates and easy forms of exercise because that’s what we’re going to be doing.

I think there’s a big booming industry in something I call spiritual wealth. There’s going to be a shift in our culture because baby boomers, by and large, are not going to be able to become materially wealthy, as wealthy as they wanted to. And we are, remember, the original hippies, so we’re going to realize this at some point in time. There’s going to be a move back to the concept of how can we live a good life. If we’re not going to be materially wealthy how can we make use of what we have.

*** Internet Boom II
There’s a third trend that I think is worth investing in and that’s the internet. The internet is not transforming the world the way it was predicted in the late ’90s — but it is transforming the world. And it’s creating enormous opportunity. There’s enormous growth there.

I am personally in it looking at all the industries that are related to this growth in the internet, particularly direct marketing industries and information publishing. The keys to being successful in this next period is being in a business that doesn’t have debt, that is cash flow positive, that doesn’t have accounts receivable and that doesn’t have inventory.

Well, that business is the information business, and the information business is huge. I don’t just mean publishing. I mean any kind of advisory services, any kind of entertainment services. What you’re doing right now is part of the information business. It’s a big business, and America is the king of the information business.

So this is great opportunity for entrepreneurs of every shape and size to become wealthy and to enjoy the rebound that’s eventually going to take place by being on this side.

Because the internet, again, has a very low threshold in terms of the cost of getting into the business. So I think from every point of view that’s certainly what I’m doing, and it’s what I advise people that talk to me about surviving the next period to do.

JCA: But survival also requires you avoid mistakes. What do you think the three largest mistakes are that an entrepreneur or a business owner can do right now?

MM:  I’ve just made a big issue about that in my latest book which is called Ready, Fire, Aim.  And that title suggests that the big mistake that most entrepreneurs make is over-planning.

They have an idea for a business. They research it. They plan it. They counter-plan it. And they just keep waiting and waiting and waiting, and they never get to the starting gate. I think it’s really important that you don’t belabor the business. You’ve got to be ready, but you have to start your business.

I would say the biggest mistakes they make are not seizing the opportunity when it’s there, which is Ready, Fire, Aim.

Two, starting a business that you don’t know enough about. You need to know what you’re doing.

And then three, I would say is, when you start the business, focusing on secondary and tertiary projects instead of the most important thing in any business, which is selling.
A lot of entrepreneurs go shopping for an office. They’re buying stationary. They’re doing business cards. They’re setting up websites. But they haven’t really figured out how to solve the problem.

The secret to being a successful entrepreneur, first and foremost, is to figure out how to sell your product. Focus on that. Spend 80 percent of your time on that, 20 percent of time on all the other things, and you’ll be successful.

JCA: Very wise words, Mr. Masterson. We have provided convenient links to Michael’s most recent bestseller, Ready, Fire, Aim.

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