Contrarian Investing: Smart, but Scary

I am a contrarian investor.  Which is why I have now shifted my angel focus to real estate for a while.  I’ve done that because real estate is in the toilet, especially in Arizona where I live in the winter, while tech is flying high in the Bay Area where I live in the summer.

I just got back from SXSW, a huge (18,000-20,000 attendees) conference that’s often called spring break for nerds. The hot thing there was location-based mobile phone applications. I counted five different platforms being used to check in: Buzz, Yelp, Foursquare, Gowalla, and Whrrl. Each of these applications has investors.  In fact, some of the deals were so hot that they were difficult to get into unless you knew someone. The space is over-invested right now.  The same is true of solar energy, which has received hundreds of of dollars from venture capitalists in the last few years and hasn’t yet paid off.

That’s because even professional investors are attracted to a space everyone else is crowding into. And this is wrong. I’ve seen it in the stock market as well.  Everyone wants to ride the same wave.

So I am going to turn to a more neglected space: Arizona real estate. It is literally at an all-time low. Sentiment about Arizona’s future couldn’t be more negative. To my mind, that’s the time to buy.

Of course in a market like this, you can’t just buy anything. You buy information. You buy experience. You buy things that are well below replacement costs.

Experienced investors are already back in the Phoenix housing market because they know they can by a home for $.50 on the dollar and rent it out to someone who has been foreclosed on as a result of the mess. Or they can buy a foreclosure and fix it up. Unfinished subdivisions are also being snapped up. Pretty soon institutions with deep pockets will be buying our see-through retail centers and office buildings.

Things always come around sooner or late. The people who bought low will sell high:-)

There’s only one pre-requisite for knowing all this: time on the planet.  If you have been in this market since the 70’s, as I have, you already know that Phoenix, indeed, has a strange economy. Indeed, wages are low and large corporate headquarters are scarce. Everything that can be wrong from an economist’s perspective is wrong. However, people continue to make millions in Arizona real estate, on the up cycle and the down cycle.

So I’ve started to look for what people will need first when the recession lifts, no matter how slowly. How do I find that?  I go to my old friends Bruce Hilby and Dick Wilson, whose careers started when mine did, and who sat out the entire upturn, buying nothing an selling everything for their investors. I heard from Bruce a couple of months ago for the first time in years. I am recapturing my youth.

(full disclosure: I am a licensed Arizona Realtor, which I use only for my own investments. I’m not trying to sell you a house:-)

Tagged as: contrarian investing, phoenix real estate, real estate investing