Friday, November 13, 2009

The First Barrier to Learning (or doing business); Thinking You Already Know

We are all guilty of it. Colloquially it's called "knowing enough to be dangerous" or "having enough rope to hang yourself" or some such other expression. But in business, such a barrier can mean the difference between doing a deal, and going home.

I used to think I knew it all. Then, as I matured, I realized I didn't even know what I didn't know.

This is acutely true in business. I can't tell you the number of times I was on a deal, thought I had it under control, only to realize (sometimes begrudgingly) that I had no clue what was going on, what the seller or my buyer were talking about, and I had to go research just to keep up.

If you’re lucky, no-one will find out until after the deal is done, and you've been paid. If you are unlucky, no-one will do business with you from that point forward.

It's hard sometimes to "eat crow" or "swallow one's pride" or "admit one was wrong" or "didn't know". But I think the most offensive and disingenuous action a person can take, is to continue to assert their "rightness" or "knowledge" even in the face of overwhelming proof to the contrary.

It takes "a big man", courage, to admit you are "wrong" or "really don't know what you are talking about".

I run into this scenario often in my practice. It happened again just yesterday (and continued today). A perhaps well meaning "broker" (an unlicensed "investor" and "entrepreneur" I might add) spouting off his "knowledge" when it was obvious that he had KNOW IDEA what he was talking about. At best he was erroneously forwarding someone else’s false "knowledge" or false data as true, at worst he was just unintelligent, and arrogant.

I know I've certainly made the same mistake. Perhaps still do. But I have learned to be humble in the face of contrary data that clearly demonstrates that I was "wrong" or at best "was missing data".

In fact, I have as a standing rule, that if anyone can prove in writing my data to be false, I will humbly "eat crow" and admit I was wrong. I would rather KNOW than be "RIGHT"!

So a lesson to us all (and lest one think I think I have all the answers, I KNOW I do not). Have the courage to confront the truth. And even more, know when you are "in over your head" and seek to learn, not assert your "knowledge".

Wednesday, November 11, 2009

Bulk REO, Fact vs. Fiction: Part VI, "Intel From the Trenches"

Yesterday I turned 40. Aside from a nice brunch with my father and a few good cigars, it was a less than desirable birthday. Four of my bulk REO trades all but fizzled into oblivion. So I thought I'd share my experiences with you to help you better understand the real Chaos that exists in the Bulk REO world.

I used to think "other brokers" were making a fortune doing bulk trades. I used to think, wow there is so much business out there and there are so many "brokers" doing deals, and so much product, it shouldn't be too hard with my knowledge, experience, expertise, and contacts/clients, to get in on this "gravy train".

Boy was I wrong. I think giving birth to a Rhino would be less painful.

The four most recent "abortions" were each with a different bank. The first was a healthy size deal with a less than healthy bank. Things started off quite well. We got the asset pools, we modeled them, underwrote them, and submitted our indicative bids. We had a call with the bank and were moving forward to PSA. Then in the 11th hour a senior bank official decided that their October "one off" retail sales were good enough that they were not going to move forward at this time on the bulk trade. What? Are you kidding me? Everyone knows October numbers are the result of August and September sales, the peak of the retail Real Estate market. So this bank, who incidentally has never done a bulk trade, thinks they are now going to sell over 500 homes (or some significant portion thereof) in the Q4 because they did well in Q3.

Bank #2 was also a decent size trade, with a bank that needs help. Again we got the asset pool, modeled, bid, and had a call all set with the bank. Then we find out that the left hand doesn't know what the right hand is doing, and all the homes we bid on are already sold or under contract and that the bank has to do a complete inventory audit and thus is not doing any Bulk trades at this time.

I'll spare you the details from the other two but suffice it to say that if these four banks are any indication of the internal chaos that exists in the 1000+ "troubled banks" in this country, we are in for quite a ride during this "recovery".

I bumped into this blog today which echoes my sentiments in my last two postings. The banks are simply unmotivated to do any significant bulk trades even though they are taking back RECORD numbers of REOs.

As I subscribe to the "no such thing as failure" school, I will continue to plug on as I firmly believe the clouds are gathering and it won't be long before many, if not hundreds of these distressed banks will be forced to sell their distressed assets, REOs and the like, to the private markets.

Or, as has been the case for over 100 banks this year alone, they will be consumed by the FDIC and that entity will be forced to start bulk selling.