I FLUNKED MY FIRST two interviews for an academic job. Fifty years ago, I didn’t make the grade at the University of California, Los Angeles, or the University of California, Berkeley, either of which would have made a fitting classroom for an unseasoned but game New Yorker.
Instead, I prevailed at the University of California, Davis, the agricultural mecca of the statewide system. I was sold when I looked at one of those old gas station maps and saw that I’d be close to San Francisco.
At a welcome party for new faculty held three weeks after my arrival, I met the woman who became my wife and has been at my side for 39 years. You undoubtedly have your own stories of synchronicity. How much of a role does randomness play in our life? And why are we so quick to dismiss it out of hand?
I made my first and best real estate investment when mortgage interest rates were the highest in modern history—17%. For four decades, this exploit became the bedrock of my self-esteem as an investor and carried me through times of despondency and failure.
But just last week, a passage in market philosopher Nassim Nicholas Taleb’s book Fooled by Randomness upended my self-assurance. “Lucky fools do not bear the slightest suspicion they may be lucky fools,” he wrote.
I had denied this dagger all these years despite the string of improbable events that preceded that first real estate purchase. Could I be one of Taleb’s prideful fools? Might you?
In 1980, Federal Reserve Chair Paul Volcker resolved to quash the prolonged high inflation of the 1970s with a stifling monetary policy that induced a recession. Sound familiar? Back then, few American families could afford a conventional loan, forcing builders to stockpile inventories of unsold homes. Staggering under the weight of short-term construction loans reaching 24% and facing bankruptcy, companies were offering creative financing to lure homebuyers.
As happens with many defining business ventures, I stumbled into real estate ownership quite by accident. Over lunch with a broker friend, my wife Alberta was enticed by the virtues of real estate limited partnerships.
At the time, people were rushing to pool their money to buy shares of a real estate enterprise, much as they would with a mutual fund. Small investors were attracted by the generous tax benefits and the promise of no management responsibilities and no liability, which were assumed by the general partners who ran the business.
Alberta’s parents had missed out on the late 1970s boom in Los Angeles real estate. She wasn’t about to let another opportunity fly by. I shuddered at the prospect of losing control over my investment and trusting a remote management team to align my interests with its own. From my vantage point, the limited partnership was the beneficiary of an unsustainable and risky real estate bonanza.
Besides, at age 36 and building a career as a research psychologist, I was damned if I was going to bow at the altar of my father’s real estate mantra and invest in rental properties. Alberta carried no such baggage. We agreed on a compromise. I would look for a property to invest in, but it would have to be our own.
Some weeks later, I came across a classified ad in the real estate section of the Sacramento Bee announcing a financing plan consisting of 30% down with the balance to be paid in 60 equal monthly installments at no interest. No interest? A phone call filled in the blanks.
A local builder had slowly sold out his suburban condominium development except for the three model apartments. He needed more cash for an assisted living project and was having trouble unloading his properties in the current astronomical interest rate environment. He wanted to sell the units to an investor and rent them back as his firm’s offices for two years.
Dare I believe my good fortune? I would have to put down 30% for an investment loan anyway, even if I could qualify. No interest and no points. No anxiety-ridden pressure to prep the condos and find a renter. And we would own the properties free and clear in five years.
I told Alberta about the scenario and she immediately understood we had to act quickly. She’d received a modest inheritance a few months before, so we had the cash to buy all three. We arranged to view the condos and, not wanting to alienate the seller and future renter, made a reasonable offer. It was accepted and the transaction closed in three weeks.
I was in shock. I had walked almost blindly into a small goldmine. I had vowed in my youth never to follow in my father’s footsteps. Instead, I became a professor, half in spite. My brother was the trouper and I was the renegade. Yet here I was making a sweet real estate deal.
A few days later, I called my father and related the story.
“So, Stevie, how many did you buy?”
“Good, you did the right thing. You’ll never see something like that again.”
It wasn’t all wine and roses. Real estate values dropped 25% between 1983 and 1988, so we were underwater for several years. The stock market was going viral and I wondered for a long while whether I’d made the right decision.
Those limited partnerships? Beset by so much blind faith and gunslinging, they crashed like other investment comets of yesteryear. The concept has survived but no longer enjoys the same panache. It was the crypto of that era.
An innocent lunch, a wife whose parents didn’t cash in, a son reluctantly agreeing to reclaim his family’s real estate legacy, a builder who wanted to move on. How much is our destiny in investing and in life tossed about by chance? Was it all serendipity? Our lack of control makes us anxious and too easily deceived by the Protestant ethic that depicts a productive life as a straight line, from school to job to family. The journey is more jagged than that.
Taleb wrote, “The simple inability to remember the true sequence of events but a reconstructed one will make history in hindsight appear more explainable than it really was. In most circumstances fraught with a high degree of randomness one cannot really tell if a person has skill.”
I have tried to find the same 0% financing plan in every recession since the 1981-82 downturn. My father was right, I have never found another. Does my inability to repeat the escapade confirm that I was merely lucky? I’ll never know if what I accomplished was due largely to skill or a whim of chance. In many of your own triumphs and failures, neither will you.
Steve Abramowitz is a psychologist in Sacramento, California. Earlier in his career, Steve was a university professor, including serving as research director for the psychiatry department at the University of California, Davis. He also ran his own investment advisory firm. Check out Steve’s earlier articles.