(Picture above of my Granddad and I in the summer of 1991, surveying the ocean waves for the first time)
First, I’m not a surfer since I live in Michigan...
However, I do remember the first time I saw real waves in Ventura, California. I was 13 years old and visiting my wealthy cousins for the first time at their beach house on the Pacific Ocean. The waves would come in one by one in almost perfect rolls. The smell of warm salty sea water was in the air and the sun was shining bright.
I was eager to ride some waves, so I grabbed the only remaining boogie board and jumped into the white foamy and very salty water. I found out just how salty the water was when I tried to get to where the surfers were hanging out.
I would start to paddle out, but as soon as a wave came I tried to go over it and instead it broke right in front of me. The wave caused me to tumble around in the wake while swallowing salt water for the first time. Unfortunately, this repeated itself until I drank so much salt water that I became physically ill.
Sitting at the shore feeling rejected and embarrassed, I watched the privileged surfers navigate the waters. After a while I started to see the answer to my first major mistake. The surfers would lay as flat as possible and as soon as an oncoming wave approached, they simply ducked down under the crest before it hit. This concept is illustrated below in “How to Duck Dive.”
I was now dry, beaten, and hot from the midday sun. But I knew I couldn’t leave California without riding a wave. It took a few times of ducking at the exact right time to wade out to the cool surfer dudes. I figured the next part would be easy…
(Danny McBride from Eastbound & Down)
After a while of awkward silence and glares from the surfers, the time came. I watched the surfers start to get into position for the big wave that was starting to grow behind me. I decided to paddle like a mad man toward the shore. I felt the wave start to suck me back into its crest, but instead of riding the wave, its full force broke right on top of me.
I remember thinking how surreal it was being pushed down to the rocks and asking myself, “Is this how I’m going to die?”
But as fast as the white water had churned me over and over, it was done. My shoulder had a small scratch, but that was it. As I looked to the shore my brother and cousins were laughing and pointing at me. Now I can’t go back… I must try this again!
At this point the surfers had moved to a different location... (Probably because my goofy tall frame on a small boogie board was cramping their style.) After a few more attempts on much smaller waves, I was officially a boogie boarder.
So, why am I telling this story and how does it relate to real estate and investing?
Because everything in this world follows a cycle. From our weather having seasons to our lives - they all have a cycle. The below business cycle chart resembles waves in a somewhat predictable pattern of 7 to 10 year cycles. What goes up also goes down.
If you’re interested in a great explanation of this, you can check out "How The Economic Machine Works -Ray Dalio video. * Ray Dalio is an American billionaire investor, hedge fund manager, and philanthropist. Dalio is the founder of the investment firm Bridgewater Associates, one of the world's largest hedge funds. -Wikipedia
The waves, in the below picture, are the cycles of the market, and we are trying to get to where the surfers hang out. There, the surfers (Smart Investors) are in position to see the market and are ready to capitalize on the next big wave. However, getting to this position is the struggle.
First, as you can see from the unfortunate boogie boarder in the above picture, not ducking down in time is costly. Ducking down is akin to selling investments at their peak and going into cash before the wave crashes and drags you to the shore naked!
Second, you need to paddle out to the smart investors and wade in the ocean waiting for the next perfect wave. If your timing is off, you end up paddling too early or too late. If you paddle too early you run the risk of being crushed by the wave. If you paddle too late you miss the wave completely and end up watching your competition ride like a surf pro to riches.
I started in real estate in late 1999, right out of college. I didn’t even know there were waves and that I was playing in the ocean. From 1999 to 2006, I was aggressively paddling to get to the cool surfers. I was buying any house, duplex, or apartment that I could rent to college kids.
All I knew at the time was that the path to financial freedom was real estate. I didn’t know that a once in a life time tsunami wave was barreling toward me soon…
Long story short, like almost all real estate investors at the time, we were dragged naked by the wave and crashed onto the shore. But I didn’t drown...
Instead, I jumped right back into the water I tried to learn everything I could about market cycles and real estate. At this point, everything I had done was by myself and with my money. All of that changed when I formed Expand Capital Group, LLC in 2010.
The best decision I made was creating investment partnerships and sharing what I learned during those tough times.
Kyle Zimpleman, Managing Member