Diligence Is The Mother Of Good Luck

A large part of the time I spend on my REIT research has to do with dividend diligence. As far as I’m concerned, the best way to weed out the “best from the rest” is to dig deep into the sources of dividend income that a REIT generates.

Summary

  • "Diligence is the mother of good luck". Ben Franklin.
  • "Greatness Isn’t Just Talent. It’s Talent Applied Consistently". Gary Player.
  • "An investment operation is one which, upon thorough analysis promises safety of principal and an adequate return." Benjamin Graham.

Ben Franklin said, “diligence is the mother of good luck.

I interpret this phrase to mean that success has more to do with careful planning and persistence than being just plain lucky. I am confident that Ben Franklin was suggesting that there is no such thing as ‘luck’, but simply that good things come from people who work hard.

In my previous career as a real estate developer, I learned how to carefully analyze a prospective investment opportunity by conducting necessary due diligence prior to closing on the deal. I had a check list that I would review that includes items such as survey, environmental reports, structural inspections, lease estoppels, appraisals, and title work.

Over the years, I found that by investing more time in due diligence, my outcomes (returns) were much better.

For example, I began to conduct tenant interviews, research competing properties, study traffic patterns, analyze area demographics, and even interview people shopping at Wal-Mart (NYSE:WMT).

I would always try to find one “nugget of wisdom” that would enable me to determine whether to move forward or “kill the deal.”

I read an article recently that suggested that “investors who spend more than the median of 20 hours on due diligence get better results than those who spend less than 20 hours.”

Although this seems intuitive, the practical reality is that few people have the time to devote to extensive due diligence when selecting their investments.

When it comes to my wheelhouse, selecting the best REITs, I have found that the phrase “diligence is the mother of good luck” is the mantra. As many of you know, I spend around 50 hours weekly conducting due diligence on each of my portfolio companies.

I’m not sure if there is another individual who spends 2,400 hours per year analyzing REITs, but it’s a process that I take seriously. Careful, expert due diligence is, hands down, a key determining factor in successful REIT investing.

Yes, there are other ways to play the game, thanks in part to the wave of REIT ETF products that are as easy as VNQ.

By owning shares in Vanguard REIT (VNQ) or a similar ETF, an investor can gain access to the good, the bad, and the ugly. Last year I wrote an articleand explained that “ETFs are simple to explain to clients, and they limit the amount of career risk for advisors who can blame the movements of broad indices, not their own stock-picking ability.”

I warned that “an ETF portfolio will perform in line with the indices, and the advisor can also charge fees in addition to the underlying ETF fees. The ability to mimic the indices, without the risk of deviating far from them, has been a boon for financial advisors.”

Alternatively, gaining market exposure without the risk of significant underperformance, without the necessity to understand company specific fundamentals, and without having to pay for active management is not necessarily a bad thing. It simply boils down to “different strokes for different folks.”

Greatness Isn’t Just Talent. It’s Talent Applied Consistently

false