转瞬间投资亏损40%

市场中没有纯粹的“霉运”。一定要清楚的是,你的每一次投资在某种意义上都是和一些专业人士的赌局。今天,在TMT领域蒸蒸日上的著名互联网公司领英(LinkedIn)股价断崖式大跌。这就是为何长期来看散户总是在亏损,而专业人士从不在市场明朗前投入大量筹码。最后,不要觉得领英的崩盘不会发生在百度、阿里巴巴、甚至是腾讯身上。linkedin Crash

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There is no such thing as bad luck in the markets.  Understand that every time you put money in the market, you are gambling to some extent against professionals. Today, the famous web company called LinkedIn gets crushed even though they are a decently growing TMT company.  This is why professionals don’t make big bets before earnings releases.  Don’t think this can’t happen to Baidu, Alibaba or even Tencent… Casual investors always lose in the long run.

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2016年度投注方向

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迈入2016年,我们 Oasis Partners 已经决定把我们的精力集中于走在市场趋势的前列。今天,我们着重讨论我们对未来的判断以及将会触发我们团队进一步投资行动的关键事件。我们将一如既往地坚持将复杂的事情简单化、高效化,以节省我们有限的时间和精力顺应大势,将执行力最大化。

1 – 放眼2016年的全球市场,美国已经找到胜过其他经济体的最佳位置。对于股市而言,只有那些快速响应市场的人才能在横向行情中获利。基于时间价值比时,我们仍然选择从房地产入手,以便从经济实力强大的美国盈利。Oasis将在2月份启动新的私募基金“齿峰房地产合伙企业(Sierra Real Estate Partnership)”,作为在我们最看好的菲尼克斯、拉斯维加斯和西雅图获取更高利润的载体。Case Schiller 20-bg


2 – 六年前,我们将高估了的加币换成了美国资产。过去五年中,我们帮助中国的会员,在海外进行分散投资,以防止高估的人民币贬值。三年前,很少有中国人相信人民币的强势会出现逆转,但是我们集团审时度势,采取谨慎措施,合理定位。

USD CNY TrendJPY CNY Trend2016年,我们只关心中国一级城市房地产市场的表现。我们视上海、北京、深圳房地产资产表现为“爆发点(tipping point)”指标。由于房地产获利盘较大加上房地产开发处于小的休整期,所以当前价格水平面临支撑较弱的风险。为了在市场建立强大的支撑水平,价格需要在一定时期内保持稳定。Chinasalesroom就全球市场而言,如果出现疲软(例如香港和新加坡),则信心大失,国内银行系统受重创,全世界主要交易所也将出现半崩溃状态,最终可能导致短期经济衰退。只要中国在房地产价格方面不丧失信心,全球市场将继续稳中向好。

China Reserves level


3. 应对大宗商品市场负面趋势最终变化的前期准备:我们集团正在开发加拿大和墨西哥的资源,作为寻求房地产高增长机会、控制风险的最好办法。加拿大和墨西哥两国都从邻国美国强大的经济实力中大大受益,根据他们签订的自由贸易协议,产品和投资可自由流通。国际公司继续在墨西哥加快增长步伐。按当前汇率计算,相对于美金而言,加拿大和墨西哥货币都处于被低估状态。

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4. – 工业商品已崩溃,但是黄金价格继续保持坚挺,维持在1100美元/盎司的价位。我们继续看好黄金市场,正在准备前期准入工作,今后几年逐步加大投入力度。

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5. – 因为我们来自加拿大,很多人都向我们询问关于石油的问题。我们认为,如果油价涨到每桶45~50美元,石油公司和富油国将会销售更多成品油。对所有大经济体来说,石油价格下降都是一种巨大的刺激,就好比数万亿的流动资产在挖掘所有商业和消费潜力。因为石油价格下降,仅中国今年就能节省2000多亿美元;因为其他材料的成本下降,中国还能节省2600亿美元。
Oil Price


我们一直都在寻找促使我们调整战略和资金投入标的的数据和活动。我们鼓励大家集中精力,顺势而为,保持耐心和谨慎的态度等待时机成熟。
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2016 Oasis Macro Bets

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EN 英语 – 中文 (CN)

One month into 2016, we at Oasis Partners have more or less decided where we will focus our attention and energy to stay ahead of the markets.   Today we will highlight where we are betting and also identify key events that will trigger further action from our team.  As always, our aim is to keep things simple and efficient, saving our limited time and energies to execute and ride the larger trends.

1 – For 2016, when looking at global markets, the United States finds itself to be best positioned to outperform other economies.  Those that are more nimble will be able to catch profits in what we expect to be a sideways stockmarket.  When considering value- for-time, we will still use real estate as the most efficient proxy to profit from a strong U.S. economy.  In February Oasis will launch a new private fund called ‘Sierra Real Estate Partnership’ as a vehicle to capture more profits in our favorite cities of Phoenix, Las Vegas and Seattle.Case Schiller 20-bg


2 – Six years ago we shifted our overvalued Canadian dollars into U.S. assets.   For the past 5 years, we have helped our members in China to diversify abroad to protect from the overvalued RMB’s depreciation.  Three years ago not many in China were convinced of a reversal of the RMB’s strength, but our group took prudent steps and is comfortably positioned.

USD CNY TrendJPY CNY TrendFor 2016, the only single event coming from China that we care about is the behaviour of the real estate market in the Tier 1 cities.  We regard the performance of property asses in Shanghai, Beijing, Shenzhen as the ‘tipping point’ indicator.  The current price levels have weak support because large percentage gains were achieved with little ‘rest’ along the way.  Periods of price stability are necessary in order for markets to establish strong support levels.  ChinasalesroomWhere global markets are concerned, if weakness (similar to Hong Kong and Singapore) develops, then confidence will deteriorate, and serious damage could be done to the domestic banking system, and major exchanges around the world will see mini-crashes and possible short recessions.  So long as the China does not lose confidence in real estate prices, the world markets will continue their steady upward trajectories.China Reserves level


3.  Early preparation for an eventual change in the negative trends in the commodities markets.   Our group is developing its resources across Canada and Mexico as the best bets to find high growth real estate opportunities with limited risk.  Both countries benefit greatly from being right next to the strong United States economy, and the free trade agreement between them allows products and investments to flow freely.  Global companies continue to grow their footprint in Mexico.  At current exchange rates, Canada and Mexico are extremely undervalued relative to America.

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4.  Industrial commodities have crashed, but gold has held stubbornly to the $1100 usd/ounce range.  We continue to be bullish on gold and are preparing to take initial entry steps to gradually build an allocation in the coming years.

Gold_1100support


5.  We get asked about oil a lot, and coming with our Canadian roots, for the next few years, we expect oil companies and oil rich nations to heavily sell more product if the price rises above $45 – $50 per barrel.  Cheap oil is a great stimulus for all the large economies and is equivalent to multi-trillion liquidity boost to all business and consumers.  China alone will save more than $200 billion usd  this year because of cheap oil and a further $260 billion usd on other cheap materials.
Oil Price


We are always looking for data and events that will cause us to alter our strategy and our financial bets.  We encourage everyone to focus on the larger trends and move patiently and deliberately when the opportunities are ripe.
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Managing uncertainty, fear, bias when entering new markets

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In this weekend’s digest, lets focus on identifying opportunities to stay ahead of the markets and the

public ‘herd’ by looking for unpopular sectors.  And in particular, identifying the art of getting accustomed to the emotional discomforts of running an investment position temporarily unpopular to the mainstream.  In essence, it is about overcoming conventional biases and also managing your own unique personal biases to improve rational objectivity.

Brain model made from rusty metal gears and gold one

In today’s fast moving electronic global markets, information, opportunities and capital are deployed faster than ever.  And not just in the financial markets, but we have certainly witnessed it during the collapse and faster than expected recovery of the American real estate market.   In order to find profits worth chasing one must increasingly look outside the box, and to do so, investors need to be able to minimize and manage their human biases.  Thinking on a global level is practically mandatory in order to locate rewarding opportunities, and there is no excuse not to do so while the RMB remains strong.

Every investor’s framework needs to have a solid way to “Discover” good ideas.  At Oasis Partners, we use the term “Opportunity Spotting”, and we have evolving routines to scan and filter out situations in the global markets that we find of interest.  After “Discovery”, comes evaluation and deeper, in-the-field research.  And it is during these two early parts of our investment process that we don’t want to let human biases interrupt what could be a truly attractive opportunity.

Identification and Awareness of fear, uncertainty due to bias.

Greece Athens AcropolisThe first step to combatting our human bias is to be aware of it.  To be totally conscious of what it feels like, if you get lazy about this, it will be too easy to stay comfortable in one’s own narrow zone of reality.  If I told you that tomorrow, you should invest one year’s worth of your income into Lithium (what your cellphone batteries are made of) would it feel odd?  How about investing in construction companies in Nigeria, Africa?  Would you be worried about putting your money into Russian stocks right now?  Is there an uncomfortable cringe in your face yet?  If that doesn’t do it then to really pound home my message, how about we invest in Greek junk bonds together?  Or development of real estate in Xinjiang?  I specifically chose these ideas because there are powerful negative news headlines about these areas.

The point here is to evoke an uncomfortable emotion as I ask you to consider to put your hard won playing chips on the table.   Depending on your personality, you may feel the ideas above are crazy, stupid, a waste of time, weird, maybe worth looking into, maybe even twisted fun.  The point is we are all human creatures, following our instincts and emotions.  Now how about if I told you Tesla Automotaive just figured out how to build a car battery that can last for 1000km and can be recharged in less than 10 minutes?  Does that sound attractive?  Whether you think so or not, that’s your greed combined with positive biases about clean, hi-tech, transportation.

Our egos are pulled between greed and fear, and at Oasis, we prefer to operate closer to the fear side rather than the exuberient greed side because we can make more money with less risk.  Before we can turn an uncertain and unpopular idea into a plan for profit is to work on our biases because they seriously affect our performance.

  • ANCHORING BIAS
  • RECENCY BIAS
  • CONFIRMATION BIAS
  • POST-PURCHASE RATIONALISATION
  • BANDWAGON EFFECT
  • LOSS-AVERSION
  • ATTRIBUTION BIAS
  • ILLUSION OF CONTROL
  • HINDSIGHT BIAS
  • BIAS BLIND SPOT
  • HOME STATE BIAS
  • NEGATIVITY BIAS

In this article, will focus on these four Recency Bias, Negativity Bias, Loss Aversion Bias and  Home State because these are the most common biases faced by investors and traders when entering trends early.   In each of these four biases, two real life examples we at Oasis have come across in recent years will be used to illustrate how to manage bias.

RECENCY BIAS.

Our brains simply put more weight on recent experience and information observed.  It is the tendency to think that trends and patterns we observe in the recent past will continue in the future.

In the financial markets we can rewind to the beginning of 2014 when the RMB was at its strongest level ever against the US Dollar.  Around China, many people were believing that the RMB would rise a further 10 percent, to 5.5 per dollar.  The RMB was marching higher on every piece of news, and market speculators and exporting companies were all conditioned for continuing gains.  Two years prior in 2012, we put the RMB-USD pair on watch for a possible trend change based on slowing manufacturing production and shrinking export profit margins.  By 2013 we started to question the conventional wisdom that the RMB could not fall or that the government had the ability to defend the level, both of which were not popular positions at the time.  At present, in light of the allowed devaluations, it is still unpopular to point out that even $3 tillion USD in foreign reserves is not sufficient to defend exchange rates, but merely smooth out market forces.

We faced strong recency bias in the real estate markets when we started researching and investing in the U.S. real estate market in 2010.  As we looked for answers, asking questions to many local people in various fields, it was clear practically everyone was expecting property rises to fall further.  You can’t blame them, they watched as houses priced at $350,000 dropped to $200,000, then to $170,000.  Young bank tellers that could afford to buy homes did not want to.  Investors outside of the United States didn’t want to touch the market that was stained by Lehman brothers.  In our own checks of the market, the deeper we dug, the more we managed to unearth cheaper prices that it caused us to hesitate on our entry point.  We saw houses we liked for $90,000 in Phoenix, and a month later, we could find an identical property for $80,000.  We adapted to the chaotic market by treating it like a stockmarket, data mining the thousands of properties being pushed onto the market each week, carefully monitoring the speed of the foreclosures, gathering as much data possible to objectively see the market for what it was.  We followed the data, resisting emotion, resisting fear and uncertainty and bought the first two units that later turned into many many more.

NEGATIVITY BIAS

Concept of businessman fail.

Scientists theorize that we perceive negative news to be more important than positive news. Negativity bias causes investors to put too much focus on the bad and being blind to a change in market trends.   Some might call this risk management, but it is not necessarily objective or rational at all.

In the Financial markets, we can currently use the Oil market as a good example of negativity bias.  There is no shortage of bad news for the Oil sector as OPEC refuses to cut output and as American Oil production now equals Saudi Arabia in capacity.  Oil also just traded clearly below the symbolic $40/barrel level at this time of writing and is showing signs of wanting to trade lower.  Despite this, an astute oil speculator would be looking for signs of price stabilization amid the all the bad headlines.  And if the bad news no longer affects the price…the path of least resistance is probably upwards.  We would also like to point out that we are not actively trading oil, but we watch it closely as we trade other commodities and related currencies.

In the Real Estate market, we can re-visit our investments again in the U.S., but this time we will highlight the negative perceptions faced by early investors of which we were a part of.  For starters, our first property purchases after the crash was in Phoenix.  A city in the middle of the desert not known for producing anything notable.  Our next investments were in Las Vegas, which on the surface seemed counter-intuitive.  Why invest in a city dominated by gambling and tourism?  Aren’t American’s too broke to spend money like this?  Who wants to live in a casino town?  As it turns out, both Phoenix and Las Vegas were among the five fastest growing cities prior to the crash, with more job and population growth than other cities of comparable size.  And yes, while Americans suffered financially from the credit crisis and they did cut back their vacation spending, Las Vegas did not suffer as much as expected because Americans chose to save money by vacationing domestically rather than international trips.  And since our team travels the world frequently, we can definitely endorse Las Vegas as a destination with lifestyle options and advantages over the majority of destinations we have seen.

LOSS AVERSION:

We don’t want to be losers. We would rather win less than to lose.  In fact, human beings hate losing so much that there is tremendous asymmetry in emotion.  “People hate losing much more than they enjoy winning. How happy are investors when they make 3% on their investments and how miserable are they when they lose 3%?”  No one likes to experience loss; as humans, we often find it painful. So painful that the prospect of experiencing the pain of loss can paralyze us from taking another risk, even when it’s potentially small or when the rewards of taking the risk are potentially great.  Fear of loss can cause investors to not only miss out on opportunities, but take emotional actions—such as liquidating their assets—that could run counter to their long-term investment goals.

In the Financial markets, inexperienced stock traders may often hurt their profitability even when their position rises.  But as the position rises, they also adjust their stop-loss upwards very tightly, and their stops are often triggered prematurely before their stock rises a lot more.  But why did they do that? Is it because the price action has a bearish tone? Or is it solely because they do not want to lose?.

The same applies for Real estate markets.  In both Canada and China, numerous property owners sold their homes when prices hit records back in 2005.  We observed very sophisticated investors with finance backgrounds in Canada figuring the peak had been reached and that home prices were unsustainable.   We saw investment bankers moving out of their multi-million dollar homes and renting instead to lock in their profits.  The Canadian market took a brief 12 month dip of 10% and then promptly raced higher by another 70% over the following 8 years.

Our recommendation is that investors be patient and continue to strike at opportunities where a slight loss is planned for and tolerated against long term gains that can exceed 50% or higher.  Chasing fixed low yield investments is a recipe for severe underperformance over any time frame longer than 5 years.  And all of our investment members in Oasis have many business cycles left to live through before true retirement.

HOME STATE BIAS

Most investors are (or at least should be) familiar with the concept of “home country bias” — the natural tendency to be more familiar and comfortable with investments in your home country.  Investors everywhere consistently display this trait, which is in direct conflict with the basic principles of international diversification.  Nevermind international diversification, even within a country, statistics show that investors over-allocate capital to their own local areas.

Americans investing in the stockmarket have For instance in the United States, if they live on the West Coast, near the technology hubs of Silicon Valley, they are very likely to be overweighted in technology by 9.5 percent or so. Those living in the Northeast (New York), are overexposed to finance by 9 percent. Investors in the industrial Midwest are likely to have 11.8 percent more industrial companies in their portfolio than the rest of the country. The greatest overexposure is in the South (like Texas), where energy holdings are 13.7 percent above the average.

From a real estate dimension, Oasis Partners has been circling the world in search of attractive real estate value.  Since 2009, we shifted assets into United States, and now we are preparing add Mexico to the portfolio of assets.  We see opportunities in Ireland as a investment proxy for Europe.    We understand that real estate investment and the capital chasing it moves much faster than before.  Real estate investment in the age of the internet communication is now completely global and minimizing home-state bias is key to capturing the best profits.

FINAL THOUGHTS

Having dived into cognitive biases affecting investment, we should also warn that one should not try to get rid of cognitive biases completely. First, because it is not possible. Second, because it is not necessary.  To manage your biases, watch the market, seek less widely available information, expect anything to happen, and don’t form an opinion if possible in the beginning.

In the investment world, PERCEPTION means everything.  And anticipating how a story will evolve and capture people’s imagination not just 3 months ahead, but 1 year out, or even 5 years and beyond is similar to a chess strategy.  Visualizing how reality and the narrative can  change requires creativity that is not too clouded by human bias.

Speaking of evolving realities and visualization, we are also pleased to note that a prominent developer from Shanghai (who we cannot name right now) has been able to look past many common biases by doing solid on-the-ground research to start investing in Las Vegas.  When Oasis decided to base itself out of Las Vegas for North American operations, we anticipated that the city would be an increasingly attractive destination for Chinese investment and lifestyle, potentially tripling its community population from 35,000 to 100,000.

 

 

2015年11月28日Oasis案例研究:如何从200万到350万美金

在本周末的案例研究中,我们将回顾我们的投资合伙人通过购置土地增持美国资产配额的过程。

从2009至2013年,我们的投资团队专注于美国西南地区住宅类房产的投资。我们的首选城市是菲尼克斯和拉斯维加斯,因为它们不仅有收益最稳定的市场,而且投资环境比那些知名城市要简单得多。

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上图:颜色越深的地区法拍房的数量越多

这份案例研究不会过多关注我们是如何在超过25个亲历调研的城市中筛选出菲尼克斯和拉斯维加斯作为我们的主攻城市。但是考虑到我们至少一半的收益表现是由选择正确的城市投资所决定的,我们将选择投资地区的过程归纳为以下几点,需要考虑的条件和因素按照自上而下的顺序排列:

  1. 我们必须决定这个国家本身与其他国际投资机遇相比是否值得进入。(2008年美国遭遇了自1929年以来最严重的金融危机,致使所有类型的资产都出现了崩盘。)
  2. 我们必须决定参与哪种类型的投资:是积极地运营一些生意、房地产、还是投资金融产品?所有这些资产的价格都已经到了超跌的范围。考虑到投资的推进速度和其他一些因素,我们最终选择了房地产。
  3. 我们从客观的角度对美国所有主要房地产市场进行了调研,从而对地区间的相对价格以及价格和地区增长、个人收入等因素之间的关系。我们还仔细考虑了一个经常被忽视的因素,就是来自于本地的竞争者。换句话说,海外或者非居民投资者是否可以获得关于这座城市的透明的信息?我们不想在一座城市花费数年时间,得到的却是那些资金充沛或是关系雄厚的本地人遗弃的残骸。
  4. 对于房产拥有者的法律保护是我们做出投资决定的另一个重要因素,因为法律是解决租客问题最有效的力量和途径。菲尼克斯和拉斯维加斯的法律都有对房东更加保护,这也使我们放弃了迈阿密、洛杉矶或纽约这样的知名城市,优先对这两个市场进行了试水。
  5. 对于租金收入和资产升值部分的税收也是菲尼克斯和拉斯维加斯的优势之一,这两座城市所在的州都对公司实行零州税(联邦税率依旧有效)。
  6. 其他选择因素和条件包括:城市增长速度和周边地理环境,例如拉斯维加斯四面环山,大大限制了可供开发的土地数量。

现在让我们回到这份案例研究的正题,首先看一下2014年1月一宗交易背后的决策和执行。从价格图表上看,市场复苏周期刚刚进入下半场,但依旧处于正常商业周期的早期,因为我们知道主流投资者还没有正式进场。case schiller截止2013年底,我们的团队已经完成了数十件居住类房产交易,并立即在公开市场转手,成功获得了25%甚至更高的利润。值得注意的是,当时我们已经在每座城市组建了非常高效的本地团队并在圈内获得了良好的信誉,所以我们总是能够早于那些本地的竞争者在邮箱或手机上收到那些好的交易信息。

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上图:政府组织的土地拍卖会现场,正在竞拍一块非常优质的土地。

作为第一批进入该市场的外国投资者,我们和一小部分美国的投资基金证明了通过私人股权结构购置和管理多处房产并实现盈利的可能性。在此之前,专业房地产圈的传统思维是无法使购买大量房产变成具有规模效应的商业模式,并且不会像住宅公寓楼的管理那样高效。我们探究了过去的趋势和行为科学,得到的结论是金融危机时期的传统思维并不是最赚钱或风险最低的策略。

我们早期的下注带来了收益,也让我们意识到我们已经处于了市场领先的位置。所以我们决定在竞争者和大众有足够信心带着资本进场前,开始新一轮更有侵略性的行动。我们想要在我们已经取得成功并足够熟悉的住宅类房产投资领域扩大规模和降低风险。于是我们开始搜索位于优质区域可以建造很多别墅的土地。DSC08114

上图:鸟瞰拉斯维加斯西南部一块出售中的未开发土地。Mountains Edge上图:同样的位置,与前一块未开发土地紧邻的便是一片已经成熟的社区。

在一个刚刚从谷底开始上升的房地产市场,购置土地允许我们在获得诸多房产上方潜在利润空间的同时,也能够有效控制下方的潜在损失空间,因为我们可以选择一直持有直到土地价格达到对我们有利的区间。在股票交易领域,我们相当于购买了房地产市场的看涨期权,控制下行风险的前提下拥有无限的上行获利空间。

DSC06777

上图:我们的SUV停靠的位置是两块地的分界线,照片中的石头是别墅区的起始点并一直向照片外很远的距离延伸。

在实际操作中,我们购买的第一块土地可以建造35栋大型别墅,每栋别墅占地约2000平米。当时,每栋别墅的平均售价为65万美金。建造35栋别墅将会花费2300万美金,20英亩土地的成本是200万美金。现在我们可以选择把土地转手卖出,或是建造基础设施后将待建土地按块卖出,还可以由我们自己完成全部别墅的开发项目。拥有灵活的套现方案对于任何专业的投资者都是至关重要的。我们以200万美金获得了价值2300万美金资产所拥有的上行利润空间。如果市场下跌了20%,我们的损失将远远低于2300万美金的20%。我们在这里不再赘述其中关于数学和金融情景分析的细节。

至此我们得出以下几点结论:

  1. 当市场因为你所预期的原因向你所预期的方向移动,一定要比其他竞争对手先启动。在这个阶段,你会预期主流的投资团体和公众依旧表现犹豫和持有怀疑态度,我们称此为“孤独的交易”。
  2. 寻求加大上行杠杆的同时最小化下行可控风险的方法。风险可划分为价格风险和流动性风险。
  3. 大跌结束后,一定要在趋势方向证明你的资产配置是正确的之后再大规模进场。这就意味着你永远不会拿到最低的理论价格。不可否认的是当决定市场行情何时结束时“艺术派”和“科学派”总是存在分歧,但是我们不会在这里讨论更多细节,因为这个话题本身足以作为另一个案例研究。但是当你发现流动性消失,见证了每类资产和房产在市场冻结期的表现时,探明一桩交易的下行风险就变得容易的多了。
  4. 寻找拥有多种套现方式的资产。这种灵活性不仅可以帮助降低下行风险,还经常可以帮助获得更高的收益。

到了一年后的2015年初,当地政府的土地拍卖表明我们购置的第一块土地的市值已经约为320万美金了。当我写这篇案例研究的时候(2015年11月),这块地的市值已经介于380到420万美元之间。当地的房屋开发商已经向我们开出了相似的报价,由于自大跌以来所有人手里的土地都一直处于紧缺状态,所以他们急于购置新的土地。这样的开发商通常可以在每栋别墅上盈利10万美元,而通过他们的努力,建造35栋别墅将为他们带来大约300万美金的利润。而且他们只需要大约300万的营运资本来实现这样的计划,相当于实现了100%的收益率。实为双赢之举。

同样,我们自己的团队也可以选择开发别墅,获取那额外的300万美元利润(除了土地升值带来的150-200万美元的利润)来奖励我们的投资合伙人们。

这就是我们在现实生活中如何将200万变成350万美金甚至更多。

 

附录:

Oasis全球合伙人公司一直在持续购置更多土地,现在我们已经拥有足够建造超过250栋别墅的土地和一个小型零售市场。一直以来,我们都以股东利益最大化为己任。

Turning $2,000,000 USD into $3,500,000 USD.

2015-11-28  Turning $2,000,000 USD into $3,500,000 USD

In this weekend’s case study, we will walk through process we went through to when we our investment partnership started to increase its asset allocation in the U.S. by buying raw land.

From 2009 through 2013, our group was focusing on residential property throughout the southwest United States, principally in Phoenix and Las Vegas as these were  in our view not only the most consistent markets, but also far simpler than some of the more well known cities.  We won’t focus too much in this case study on how we shortlisted Phoenix and Las Vegas as our prime target areas out of more than 25 cities we researched and visited often multiple times.  But given we can attribute at least half (50%) of our performance to choosing the right cities to allocate capital to, we can abbreviate our investment process regarding geographic markets into point form.  In short, the criteria and factors we considered were as follows from top down:

  1. We had to decide whether the country itself was worth entering in comparison to other international opportunities. (In 2008, the biggest financial crisis since 1929 caused collapses in all asset  categories in the U.S. )
  2. We had to decide what asset category we wanted to invest in:  Actively run businesses? Real Estate? Financial instruments? All of the above at distressed prices?  We chose real estate for collateral reasons and for speed of entry.
  3. We objectively searched all major real estate markets in the country to understand relative market pricing between regions, and pricing relative to geographic growth, personal income among many other factors.  One often overlooked factor we consider carefully, was whether we could seriously compete against local incumbents in a given city.  Or in another words, how transparent and accessible was a particular city for foreign or non-resident investor?  We were not interested in committing years to a market where we would only end up with scraps that other well funded and well connected locals did not want.
  4. Legal protections for Property Owners played an important part in our decision making since the power to remove tenants quickly can solve problems efficiently.  Both Phoenix and Las Vegas have laws that are friendly to landlords, and played a strong role in motivating us to test these markets sooner than more well known cities such as Miami, Los Angeles or New York.
  5. Tax on income and capital gains was also considered and both Phoenix and Las Vegas are located in states that have zero corporate tax rates.  (though US Federal taxes still apply)
  6. Other factors and criteria include ….growth rate of the city, physical geographic constraints such as finding out Las Vegas is surrounded on 4 sides by mountains, limiting the amount of prime land available for future development.

 

Now to the real essence of this case study, we look at the decision and execution behind a transaction executed on January 2014, arguably more than halfway into the market recovery cycle if strictly looking at price graphs, but early enough in normal business cycle because we knew that major players had not yet started playing too seriously yet.  By the end of 2013, our group had conducted dozens of residential property transactions, half of them held for rental income and appreciation, and half of them rehabilitated and flipped onto the open market for 25% or more profit right away.  It should be noted that at this point we had built up effective local teams in each city and developed a good reputation among our networks so that good deals usually landed in our email boxes or mobile phones sooner than our competition.  We were among the first foreign investors to enter these markets and together with a handful of other US investment funds, we collectively proved that it was possible to use a private equity fund structure to acquire many single family homes and manage them profitably.  Prior to this, conventional thinking in professional real estate circles was that buying many houses was not a scaleable venture and certainly not as efficient as multi-family housing units.  We leaned more on past trends and behavioral science to conclude that conventional wisdom during this crisis period was not the most profitable or least risky strategy.

As our early bets paid off, and knowing that we were “ahead of the pack”, we decided to press a bit more aggressively before the competing investors and the public had enough confidence and capital to crowd our market.  We wanted to keep doing something similar to where we experienced success (residential property), but scale it up while minimizing risk.  We started looking for land in prime locations that had space for many residential homes.

In a rising property market coming off of a crash, being able to secure land allowed us to buy the upside of many housing units, while allowing us to be exposed on the downside to manageable losses so long as we had the power to hold onto the parcels until prices were in our favour.  In trading terms, we were buying a “call option” on the real estate market, allowing for lots of upside and limited downside.  In actual terms, our first purchase was a parcel that could fit 35 large homes, each with 3 Chinese Mo of land.  At that time, each home would have an average selling price of $650,000.  If we owned 35 finished homes, this would cost us almost $23 million USD.   We bought the nearly 20 acre parcel for just $2,000,000 USD and now had the flexibility to flip it as-is later on, develop the infrastructure and sell the finished lots, or build the complete houses ourselves.  Having flexible exit options is critical for any professional investor.  And so with just $2,000,000 USD we have claim to the upside of a $23,000,000 USD asset.  On the downside if say the market fell 20%, we would lose far less than 20% of $23,000,000 USD.  For simplicity sake, we will not go into detailed mathematics or financing scenarios.  The summary up to this point is:

  1. When the market is moving in your direction for the ‘right’ reasons…meaning the reasons you anticipated, press your bets before the rest of the herd shows up to compete.  At this stage, you can expect the mainstream investment community and public to be hesitant and skeptical, we call these ‘lonely’ trades.
  2. Look for ways to get more upside leverage with minimized or manageable risk. And risk can be broken down into pricing risk and liquidity risk.
  3. Coming off any serious crash, press your bets AFTER prices are moving in the right direction to prove your positioning is correct. This means you will never achieve the lowest theoretical price.  Admittedly, there is quite a degree of “art” vs “science” in identifying when market capitulations are over, but we won’t go into detail here since that is a case study all to itself.  But ascertaining a transaction’s downside risk is much easier when you have seen liquidity disappear and have observed how each category of asset or property has behaved when the market is frozen.
  4. Look for assets and strategies that allow for multiple exit options. This flexibility not only helps to lower your downside risk, but can often help enable the opportunity to earn much higher profits.

By early 2015, just one year later, local government auctions indicated that our first parcel of land had an approximate market value of $3,200,000.  At the time of this writing (November 2015) the market value is in the range of $3,800,000 to $4,200,000.  Local homebuilders have presented us with similar offers, anxious to secure land as they are all short on inventory since the crash.  Such builders stand to make about $100,000 of profit on each house they build, thus for their efforts, they would earn approximately $3,000,000 or profit for the 35 homes they would build on our parcel.  And they would only need about $3,000,000 USD of working capital to execute such a project thus they would be making a return of 100% on their working capital.  Everybody wins.

Alternately, our own group could build the homes and earn that extra $3,000,000 USD (on top of the $1.5M~2M profit on the land price) to return to our investment partnership.

And so concludes our real life case study of how to turn $2,000,000 USD into $3,500,000 or more.

 

Addendum:

Oasis Global Partners continued to accumulate more parcels of land and now owns enough area to build more than 250 single family homes and a small shopping market.  As always, we are driven to maximize shareholder value.