There will be a real estate point made at the end of this article, I promise.  Please do enjoy the rest of it….

So let’s see if I have this right.

The reason that Bitcoin is valuable is because they won’t make more of it.  It is not the greater fool theory, right?

If so, I want to talk about our hedgehog.  For those of you that don’t know, the hedgehog at my law firm is a very powerful unifying principle.  It stands for the proposition that we really care about our lawyers and our clients, and it is not just because the lawyers bill hours and the clients give us money.  It is because there is something special in the relationship. 

Yes, people make fun of us now and then, as it is a little hokey, but it is 100% sincere.  It comes from our hearts.  In this rough and tumble real estate world, we really do care about the people who matter to us, namely, our colleagues and our clients. 

So all of those people get a hedgehog to evidence this.

Now, what does this have to do with bitcoin?

Well, I was talking with our client relations team about our hedgehog holdings, and we concluded that we had given out several thousand of them to clients over the years.  I then asked how many we have left in the secret hedgehog holding bin, and I was told about 2000 are left.

Being a touch paranoid about these things – indeed very paranoid – and believing in our firm's longevity – I immediately suggested that we buy another 5000 just in case.  “Call the hedgehog makers,” I said.  “Let’s see if we can make a bulk order.”

With an eye roll, or maybe worse than an eye roll, the team knew that I cannot be deterred when this mood comes over me, so they agreed to call.  But the news they came back with was not good.  Not good at all.
“They stopped making them,” I was told.

After I got over my despair, I had another thought, and a gleam came into my eye. 
“Hmmmmm,” I thought.  “This is like when an artist dies his works shoot up in value.  Or maybe it is the same thing as….bitcoin……?”

“I mean, there is a limited supply.  They aren’t making any more.  And that is all it takes in today’s markets to create untold wealth.”

So, where does this lead us?

Well, D&S is hereby announcing the birth of HEDGECOIN.

This is not actually a coin.  Instead, it is a D&S hedgehog that is given to a client or held in our secret hedgehog vault.  I am guessing there are only about 4000 in the world.  And there will be no more.

And these are better than Bitcoin.  Since Bitcoin, as far as I know, is backed by nothing at all, whereas our Hedgecoins are backed by the full faith and credit of Adler & Stachenfeld LLP.  Also, we have been around for almost 24 years, where Bitcoin is only 12 years old. 

If Bitcoin is worth even today about $40,000, our Hedgecoins should at least be worth that.  So as I do the math, we have about $160M of Hedgecoins.  And the upside is tremendous.

So to our clients who have Hedgecoins, I urge you to hold on to them very carefully.  
Finally, we are discussing whether we need an investment bank to make a market in the Hedgecoins.  We are choosing between Goldman Sachs and Morgan Stanley.
To end with something a bit more serious, I will give you some thoughts on the markets, and I will start by saying that greed can turn to fear as quickly as the other way around. 

We have all heard the famous story of the shoeshine boy giving John Kennedy stock tips in the late 1920s, which signaled to Kennedy that ‘everyone’s in the game, and that means it’s time to get out.”

With all the craziness going on – Gamestop – Robin Hood- SPAC Fever – Tesla worth close to $1T despite never having made money – Dogecoin worth almost exactly the same as Ford Motor Company -- we need to think about what will happen when this speculative fever ends.

Did you hear me just now – Dogecoin is worth the same as Ford Motor Company. 

And I am starting to think that the end is coming sooner than it appears.  The Fed is kind of sort of saying that they just ‘might’ think a little teensy tiny bit about maybe considering not sticking with low-interest rates forever.  And the speculative risk is not as thrilling today as it was just a month ago – at least if you bought into SPAC’s and some other things.

If you are older than in your early forties, you might recall that during the internet bubble, companies were valued on ‘eyeballs’ instead of earnings.  And then, over a 90 day period, just about all of the internet companies went bankrupt and disappeared without a trace.

Of course, no one knows what will happen today, and the bubble might just get bigger for a long time as the governments of the world – other than Switzerland – continue their gyrations to keep the game ball aloft with different versions of printing money.  
But – just in case -- let’s all take a step back and think carefully about how we can position our real estate businesses to be Antifragile -- to use Taleb’s phrase for businesses that are actually strengthened when adverse events occur. 

Is there a way to do this?  After spending a ton of time thinking on it, I have concluded that I am in fact not smarter than everyone else and that I don’t have a brilliant idea that no one else thought of.  So instead of saying what “to do,” I will instead say what “not to do.”  In that regard, the suggestions I made in a prior article seem to be as on-point today as when I made them, so here they are:

  • Don’t let the animal spirits in the market change your underwriting.  Those clients who tell me mournfully:  “Bruce – I haven’t done a deal in over a year” – those are often the smart ones as they are not pressing to do deals that don’t meet their standards.  So don’t let concerns about not finding deals push you to do something foolish.  Not doing deals is a bummer – but doing a bad deal is a terrible, awful, horrible much worse bummer that you regret for the (sometimes many) years you are stuck dealing with it – not to mention what it does to your long-term track record.
  • Don’t try to time the market.  You just can’t do it.  The goal should be long-term value creation, knowing that market swings will help or hurt you in the short run. 
  • Don’t put yourself in a high-overhead situation where you are pressured to do deals that are not good ones.
  • Don’t rush off to different geographies if the market you really know gets too expensive.  This is consistent with Warren Buffet’s admonition “If you can’t run your own business successfully, it doesn’t make sense to then enter a new business you know nothing about.” 
  • Don’t ‘hunker down’ – I would never advocate that as it implies that you are really just trying to time the market based on the theory that it is too high now and it will go lower, and of course, you will know just the right moment to jump in.  Of course, keep on looking for good deals, which are harder to find and/or require different intellectual capital to unearth. 
  • Don’t sit by and let the brokers be the ones creating the value.  Instead of hoping brokers – or others – will call you with deals, I advocate that you be the one who “creates” the deals by figuring out a market – an assemblage – a change of use – or another way to “create” the value in the deal. 
  • Don’t fool yourself into thinking that it is better to chase higher yields with higher risk.  If you do this, you haven’t really changed the risk profile of your business – it is really the same thing in the end in terms of expected upside.  The goal, of course, is to take advantage of situations in which the risk/reward does not balance but instead tips in your favor.
  • Don’t continue to do what you have already been doing.  The definition of insanity – we all know – is doing the same thing again and again and expecting a different result.  If doing the same thing day after day doesn’t result in deal flow, then try something else.
  • Unless you have a special strategy, considering avoiding the (four?) basic real estate food, groups.  Everyone is looking at them, and it is doubtful you will find a great risk/reward there right now.  [Note: when I wrote this, Retail was a basic food group – and as you know from my other articles, I think this is the time to be buying retail.]
  • Do - follow the view that “competition is evil,” so avoid competition as much as possible.  As Michael Porter (and other great thinkers emphasize), it is much more important to be “different” than to be “better.”

Finally, to end on a very high note, it just ‘might’ end up that when the bubble-mania pops, all the excess dollars will go into real estate.  I mean, boring real estate throwing off an 8% return doesn’t look like much next to quintupling your money in 24 hours on Bitcoin options, but it looks awfully enticing if the alternative is being wiped out of half of your money in 24 hours.  Maybe this time, real estate will be the asset class to which everyone gravitates when the world changes
Bruce Stachenfeld aka The Real Estate Philosopher™