BlackRock's Warning to Investors

By?Patrick Donley, Matthew Gutierrez,?and?Shawn O'Malley , edited by?Robert Leonard ?· December 16, 2022

*LinkedIn newsletter is posted at a one-day delay.

The brutal selling in stocks continued today, as Mr. Market threw another fit over 'hawkish' language from the Fed, indicating that the central bank remains committed to keeping interest rates elevated.

No sign of the money printer returning any time soon ????

We won't let markets kill our mood, though. I (Shawn) am excited to announce that we have a new writer joining our team: Matthew Gutierrez.

Matthew was formerly a staff writer for The Athletic and has written freelance for the New York Times. With his arrival, Matthew is replacing Patrick, who's moving on to host our?Real Estate 101 podcast .?

If you've been a reader since our launch in July, you should know Patrick well. I know he's going to do a great job ??

Here's the rundown:

MARKETS

*All prices as of market close at 4pm EST

Today, we'll discuss two items in the news: Why the world's biggest asset manager is warning investors about owning sovereign bonds, and why some colleges are dramatically cutting tuition prices, plus our main story on how to succeed in real estate investing.?

All this, and more, in just?5?minutes to read.

IN THE NEWS

??? BlackRock Shuns Sovereign Bonds?(Bloomberg )?

Explained:?

• With interest rates surging higher this year, many institutional investors are starting to find bonds priced quite cheaply since bond prices and interest rates have an inverse relationship. BlackRock (BLK ), however, does not.?
• The world's largest asset manager's highest conviction opinion is that investors should avoid long-term sovereign bonds, with most of these securities being issued by governments globally that are increasingly suffocated by their debt levels while inflation remains a chronic challenge.?
• The company's vice chairman said, "We're underweight nominal long-term government bonds in each scenario in this new regime."

Why it matters:?

• Because of challenges in fighting inflation, "central banks are unlikely to come to the rescue with rapid rate cuts in recessions they engineered to bring down inflation to policy targets." In other words, government bonds worldwide remain unattractive without support from the Fed and its peers, even at considerably lower prices today than just a year ago.
• BlackRock believes that long-term government debt no longer fulfills its conventional role as a risk-free asset that can diversify portfolios. This results from expectations that inflation will remain persistent, reducing the real value of future bond payments.?
• The firm recommends inflation-linked bonds, such as Treasury Inflation-Protected Securities (TIPS), though these have also?dramatically underperformed ?this year.?

?? The Tuition Reset?(NYT )?

Explained:?

• A growing number of small, private colleges are overhauling prices to reflect what most students actually pay after discounting through need-based and merit financial aid.?
• Colby-Sawyer College, a small school in New Hampshire, cut its official tuition price for the 2023-24 school year to $17,500, from about $46,000, a drop of 62 percent. Its tuition is now only slightly higher than the cost of attending regional public universities.?
• Colby-Sawyer's president, Dr. Susan D. Stuebner, was quoted as saying: "The conversation nationally has really become, why is the price of college so high? How many families are we not in conversation with because they see the sticker price and say, 'Not for me'?"

Why it matters:?

• Many schools, especially smaller, private colleges, feel pressure to fill their classes. There's competition over a shrinking pool of college-age students, and skepticism is growing about whether the degree — and its debt — is worth it.?
• Nearly a third of parents and students believe that a college education is overpriced compared with its value, according to a recent Sallie Mae and Ipsos study.?
• The cost of attending college has soared in the past two decades, and nearly 50 million Americans have student loan debt today totaling almost $1.8 trillion. Increasingly, college-age Americans are considering alternatives to the traditional college system.

BROUGHT TO YOU BY

Enjoy the ups and downs of roller coasters, but not when it comes to your money??

Learn how?passive real estate investing can give you the enjoyment of a roller coaster ride without all the ups and downs.?

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WHAT ELSE WE'RE INTO

?? WATCH: Investing in bull and bear markets, and why investing in a bear market could work in an investor's favor

?? LISTEN: Opportunities in energy, metals, and mines. Will Thomson discusses on We Study Billionaires

?? READ: Can child care be a big business? Private equity thinks so

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THE MAIN STORY: HOW TO SUCCEED IN REAL ESTATE

Overview

Reading the Forbes 500 list, you'll quickly find that real estate is the primary source for creating much of these billionaires' wealth.

There are various reasons to diversify your investments into real estate, ranging from creating enough passive income to last a lifetime to taking advantage of available tax benefits.?

If you want to move beyond investing in a publicly traded real estate investment trust (REIT), though, and get more hands-on and involved with real estate, there are some important traits you'll need to ensure success and profitability.?

I (Patrick) called my dad, who has had a successful career as a builder and developer, and asked him what he thinks are the necessary traits for winning this real-life Monopoly game.

Let's discuss.

Six Key Traits

• Relationship builders?— Great real estate investors focus on building a robust network of connections.?

Think of real estate as a game that cannot be played alone. No matter what you do in the field, you'll need to build a high-quality team of people you can rely on. This includes brokers, accountants, lawyers, contractors, electricians, plumbers, and the like.?

Books like?How to Win Friends and Influence People ?are timeless classics because they lay out the fundamentals to excel at relationship building.?

I know some investors who read this book every year once they realize how important building their network is.

• Knowledge?— There's no substitute for knowledge. The best real estate investors are continuous learners.

The more you know about all aspects of real estate investing, the less fear you'll have. And fear holds many people back from getting started.?

Building your knowledge is the antidote. For this, we have?an entire podcast ?dedicated to helping you learn.?

• Good money management skills —?Unfortunately, many people fail at real estate investing due to poor money management skills.?

Create a budget plan before starting any project and an emergency fund for the unexpected.?You want to be involved in projects in which, as Mohnish Pabrai says, "Heads, I win. Tails, I don't lose too bad."?

While leverage can be extremely profitable in good times, too much debt can wipe out investors during a downturn.?

As my grandfather told my dad and his brothers as they got started doing real estate development, "Don't get too far from shore, boys." In other words, stay adequately financed, avoid excessive leverage, and you'll be able to weather the inevitable market downturns.

• Being a good negotiator?— Negotiation is an important part of the entire real estate process, and you'll need to do it with everyone, including your bank, contractors, brokers, and buyers.?

If you're uncomfortable with the negotiation process, you'll need to develop skills in emotional intelligence and active listening to create win-win solutions.?This podcast episode ?should help.?

Both parties must feel good about the outcome of the negotiation process. Beating someone over the head to win a negotiation may be profitable in the short run, but burning bridges could destroy your future prospects.

• Vision and long-term thinking —?As famous author Steven Covey would recommend, begin with the end in mind and know what you're trying to achieve.?

Without a clear vision and long-term plan, you'll be unfocused, and your results will be mediocre. It's very tempting to chase the new shiny object in real estate because there are so many ways to create wealth.?

• Patience?— The real estate business is not a sprint, it's a marathon.?

That is to say, you shouldn't expect immediate results. Finding a great real estate deal can often take several months, even years.?

Unfortunately, many novice investors jump in at the wrong part of a market cycle.?

When everyone is buying a home, it can be tempting to want to get involved. Top investors zig when everyone else zags, though. They're fearful when others are greedy and greedy when others are fearful.?

Takeaway

Real estate is an essential part of many wealthy investors' portfolios.?

The asset class offers extraordinary potential, while providing a diversifying hedge against inflation.?

With the above wisdom, why not consider adding real estate investing to your plan for 2023?

Dive Deeper

For more, check out our curated collection of the?best real estate podcasts of 2022 .?

You can also listen to?Robert Leonard's past interview with Brandon Turner ?of BiggerPockets to hear his guide to getting started in real estate investing.

SEE YOU NEXT TIME!

That's it for today on?We Study Markets !?

See you later!

All the best,

P.S The Investor's Podcast Network is excited to launch a?subreddit ?devoted to our fans in discussing financial markets, stock picks, questions for our hosts, and much more! Join our subreddit?r/TheInvestorsPodcast ?today!

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