I just read a book called The Uncertainty Solution, by John Jennings of the St. Louis Trust Company – and I also heard him speak live.  I like people who use math and analytics to, well, analyze things, and Jennings does that exceptionally well.  In short, his thesis is – overall – this:

  • Many more things are uncertain than we realize.
  • We should cultivate an awareness of when things are uncertain and build this awareness into our investment decision-making.

He outlines a whole bunch of ideas, most of which apply to investing in stocks and similar assets.  In this article, I will hit some of them and apply them to real estate. 
Concept One:  He assesses investment acumen between women and men.  His statistics lead him to conclude that women are better long-term investors than men, but before women celebrate, he points out that the best investors are…..get this….dead people!  How can all of this be?  His analysis is that most ‘sell’ decisions are mistakes.  Men are more likely than women to make decisions to change investments, which includes sell decisions; hence, women, who are less likely to make these sell decisions, outperform.  Of course, dead people make very few decisions, don’t they?  Hence, they perform best of all.
In this vein, I suspect if you think about it, you have a grandparent who invested in a stock forty years ago that went up multifold over that long period of time.  To be honest with yourself, if you inherited that stock forty years ago, would you have just left it there?
Interesting, isn’t it?  How would this apply to real estate?  Well, it seems pretty obvious.  The most likely long-term performance enhancement would be to buy and hold. 
Notably, those who buy and hold never pay taxes.
Concept Two:  Most stocks underperform the market.  This was a big revelation and made me conclude that I will never pick an individual stock again.  This is all about the difference between mean and median – basic math.  Apparently, while all stocks have a 50% chance of outperforming the ‘median’ – only 26% outperform the ‘average.’  This is because a few outperforming stocks pull up the average.  So – sorry if this is out of line– only a mathematical illiterate (like me – till now) would try to pick outperforming stocks.  You’ve got a much better chance of winning in Las Vegas.  Therefore, the right answer here would be to choose an index fund that is not cap-weighted.  This – by the way – is very hard to do.  
How would this apply to real estate?  I admit I am not sure here, but I think the best answer is that you would be better off diversifying investments since that would get you the best chance of beating both the median and the average.  This diversification could take all kinds of formats, i.e., asset class, geography, risk/reward profile, cash flow versus development, etc.  It would seem that this would give the highest chance of long-term outperformance.
Concept Three:  It is foolish to follow, or even listen to, experts’ forecasts.  Experts have no particular likelihood of being correct – and I think we all know that on some level.  But what is particularly interesting, according to Jennings, is that the more confident experts are, the more likely they are to be incorrect.  There is another book called Superforecasting by Dan Gardner and Phillip Tetlock that highlights this as well.
How would you apply this to real estate?  I guess it is easy.  Don’t listen to experts.  Notably, I have written many articles about how the media is even worse to listen since it invariably has to overreact to both fear and greed. So, Mr. Media can be your friend if you do the opposite of what he over-recommends.
An amusing concept you will have to evaluate is whether this would mean you don’t listen to me in my forecasts.  I leave that to you to assess. 
Concept Four:  Prepare for fat tails.  What does that mean?  Well, without getting too into too much math, it has to do with standard deviations and bell-shaped curves.  Okay, before you skip this paragraph, I will make it super simple by saying that major unpredictable events are completely predictable – you just can’t figure out when these unpredictable events will occur or what will actually happen.  This is because they are…..well…..unpredictable.  COVID itself was not predictable, but a cataclysmic market event is a lot more likely than you think.
What should you do in real estate here?  Simple – don’t be a pig, hog, or whatever gets slaughtered.  You should never – ever – put yourself in a position where you could lose your entire stake.  There should be a margin of safety in your investing.  In real estate, this means, among other things: (i) avoiding unlimited personal liability that would wipe out your entire net worth, (ii) not taking on too much leverage, or if you overleverage, limiting it to only a small part of your portfolio, and (iii) avoiding putting too many eggs in a particular strategy – see diversification suggestion above.
Concept Five:  If you wouldn’t buy a stock at a particular price, then sell it!  This is obvious, but there are various biases we all have, including the sunk-cost bias and other emotions that lead us astray.  Not to mention our egos.  As a guy, I would rather tell my wife: “Honey, we made a killing in the market today,” rather than say, “Ugh, honey, we lost a lot of money today.”  These thoughts block us from acting optimally.
How does this apply in real estate?  Of course, it applies to when you might decide to sell a property.  But it also applies if, for example, you are a borrower and overleveraged, and there just isn’t much upside in continuing onward, so you might as well just hand it over to the lender.  Many parties are doing that now, and likely, they are making the smart decision, as opposed to laboring for a zillion years to earn their money back.  As a side note, this decision may not be so easy after all, as you might keep working to pay back lenders or co-investors to maintain your reputation, and that has to be weighed against the foregoing.
Concept Six:  Avoid overconfidence bias.  I suspect we all have gotten nailed by this.  We think we know much more about a possible outcome than we do.  And we over-invest, etc.  Sorry, men, but we are more likely to fall for this bias than women. 
How does this apply to real estate?  I guess, pretty obviously, just try not to fall for it.  Second-guess yourself.  Push others around you to challenge your assessments and truly listen to them.  Much as you want to think of yourself as omniscient, you aren’t.  This is all part of the uncertainty that surrounds our decision-making.


There is a lot more in Jennings’ book – I only hit about 25% of the highlights, as I didn’t want this article to get too long. 
To conclude, to be a better real estate investor, I advocate the following:
First, you really should read Jennings’ book.  I am proud that I am already smart enough – like Socrates???? – to know that I don’t really know anything – see, and subscribe to, The Bruce Philosophical Project – but this book illustrated that I know less than I even thought I knew, if that makes sense.
Second – add the principle of uncertainty into your decision-making and apply the principles in Jennings’ book – some of which I outlined above.
Third, and finally, rethink your entire investment strategy with deference to the uncertainty concepts that Jennings outlines.  If you do this, you may be more confident than ever before that you are on the right track and have a solid investment plan.  Or you may conclude that some tweaks or major changes are in order.
Whatever you do, I wish you the greatest of success.

Bruce Stachenfeld aka The Real Estate Philosopher®