Sunday, March 14, 2010

Don't think of it as an exit strategy.....

Guideline #31: Have a plan for the future in mind.

Friend Tony told me that the first or second rule in investing
was to have an "exit strategy". When he first posited that, I
nodded my head and said "of course". The more I thought
about it though, the more doubts I had about it. As Teacher
Furman often said about investing in the stock market, "its great
advantage is its liquidity, you can take your losses at any time".
Doesn't appear to me that Warren Buffet has an exit strategy.
Then there are the examples of some extremely successful
local real estate investors who haven't sold anything for thirty
years, and have no plans to sell now. Their estates will handle
the exit from their real estate holdings.

Exit strategies are surely tougher to execute in real estate,
for Mr. Market will on occasion decide not to cooperate.

Friend Pat solved my problem by suggesting that an "exit
strategy" was nothing more than a plan. A plan that
elaborates on Guideline #2 (know why you are investing),
assumes that you pass Guideline #8 (survive the first
investment) and takes Guideline #17 seriously (what you
do matters), and then projects out five, ten, or fifteen
years.

I like that approach. Our plan has evolved. We invest for
both cash flow and capital appreciation. We like creating
things that are not there now. I like fixing old buildings,
my partner likes putting up new buildings. A time or two
we have speculated. Mostly we look for opportunities
that appeal to us. Truth be told, our best investment
opportunity ever just came looking for us one day when we
were busily working on something else. Economic
circumstances have on several occasions called for
adjustments to the plan. That is just part of the adventure.
We have fun and feel good about what we are doing, and do
not plan on stopping any time soon. I suspect our children
will execute our exit strategy.

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