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The January 8th edition of the Wall Street Journal has an editorial by one of the Titan’s of individual investing – John Bogle – the founder and former CEO of Vanguard Funds. The guy has been around a LONG time and here are what he calls “Six Lessons for Investors” … with my comments regarding Commercial Property Investing liberally inserted.

Lesson #1: Beware of Market Forecasts … even by experts.

He specifically says you might want to ignore the forecasts completely since most Wall Street strategists are paid to be bullish and almost all underestimate the risks of any particular investment. My spin: true for stocks and perhaps not as much of an issue for Commercial Property.

Certainly don’t believe a person trying to sell you on a particular Real Estate Market without stats and forecasts to back up their assertions. REIS and other reporting services really level the playing field here. You have access to the same statistics and market analysis the institutions use to make decisions. So, on this one, get out there and do the analysis and you will be able to make your own market forecasts of much higher quality than you will find on Wall Street.

Lesson #2: Never Underestimate the Importantance of Asset Allocation.

Now Mr. Bogle is talking about allocation between stocks and bonds here. This “lesson” is nothing new since studies have shown that asset allocation is the source of much of the returns you can expect from any portfolio. AND let’s widen things out here. Asset allocation into Commercial Property would have saved a lot of people a world of hurt in this recent Stock melt down. I strongly believe most of us should include investments Wall Street believes to be “Alternative” in our portfolios … things like Commercial Property. Nuff said.

Lesson #3: Mutual Funds with Superior Returns Often Falter.

This is the old one-two of performance chasing and “regression to the mean”. Since performance is always measured looking in the rear view mirror … this month’s “top performer” was only a top performer in the previous months and may be a real dog right about the time you get in. And any superior return is inherently unstable … performance will always tend to track back towards the average … or “mean”.

Remember too that Bogle is a “buy and hold” kind of guy. In Commercial Property we are talking about becoming expert market timers. You get in when the market is set to roll and get out when everyone else is getting in at the top. Since Commercial Real Estate market cycles are predictable and usually slower than stock cycles, timing is possible … no, it’s essential. Our job is to get out before regression to the mean can even occur.

Lesson #4: Owning the Market Remains the Strategy of Choice

I could see this one coming since Bogle pioneered the Index fund industry. Also an expected “lesson” from a buy-and-hold investor. In Commercial Property, the key is to have a lock on where the Market is headed … “owning it” from an information standpoint, so you can time your entry and exit.

Lesson #5: Look before you Leap into Alternative Asset Classes.

Amen Mr. Bogle … Amen! Never invest in anything you don’t understand. Most individual stock investors don’t understand the companies they own. You need to understand everything about the market, the project and the sponsor/asset manager before investing in Commercial Property. AND Commercial Real Estate is not an “Alternative Investment” class. It is bread and butter, cash flow acquisition … not some made up credit default swap bullcrap.

Lesson #6: Beware of Financial Innovation.

The latest and greatest, newfangled, “can’t lose” investment is likely to be hooey. If it sounds to good to be true … it is. That’s why Commercial Property works from an intellectual standpoint. This is basic Monopoly structure. We buy a building, charge our tenants rent, pay the expenses and split the profits. Now lots of innovation can be going on in the way you manage the property, the upgrades you make to the building, increasing tax write offs with cost segregation …. etc. and the structure of this investment is a solid “old school” winner.

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There you have it … my spin on Bogles 6 lessons. To your investing success.

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