The trip to Baja and the simple and consistent waves at SS reminded me of the real estate business. There is so much real estate in the world that one does not need to be in a frenzy to acquire it. Since there is no real exchange and it is definitely not homogeneous there is plenty of it for everyone. My first partner in life used to tell me, "Every time you think you are so brilliant at real estate look out the window and see what you did not build, what you do not own and what you did not finance." No one anywhere owns more than 1 percent of any market in any asset. There are really relatively few big players who know the way down the signless dirt roads to the pristine spots and it is simple and easy to see what they are doing. Real estate is a simple business and bricks and mortar can be exchanged privately without the parade of horribles that we have discussed. There is no need for a "digital odometer." It normally moves in a lumpy fashion through private treaty trades and in a lagging fashion to the world around it.
The challenge with real estate is simply one of the amount of "risk" which is inherent in the investment. Usually, that risk is measured in terms of the perceived quality of the assets and the quantity and cost of debt used to acquire or refinance an asset. Real Estate on a cash basis is very forgiving and a simple and effective "capital preservation" tool. We change its risk profile by demanding higher and higher returns from the same asset by changing the capital structure or adaptive re-usages. The use of debt and debt instruments turbo charges yields and raises the risk curve without regard to the underlying cost of capital.
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