Similar to the assured income provided by dividends on stocks, rental income provides real estate investors with a defined cash flow for return on investment, as opposed to capital appreciation (i.e. praying that real estate values increase). Stock investors prefer higher yields to lower ones, so as a real estate investor, wouldn’t you also like a higher yield? Yes. And the yield can be measured by the Price-to-Rent Ratio. Trulia, a real estate search engine, has created an interesting map of the U.S. which displays its Rent vs. Buy Index for 50 of the largest cities by population. Here is a snapshot.
Trulia’s Rent vs. Buy map relies on its calculation of the Price-to-Rent Ratio, which Trulia more fully explains as follows: (more…)
The red USC cloud (fitting) and the green Duff & Phelps cloud aren’t surprising, however, I find the blue San Francisco cloud interesting. Nearly everyone that I met during undergrad sits in the San Francisco cloud along with my broader San Francisco network accumulated since high school. I’m guessing this means one of two things. Either, I am well connected in San Francisco so LinkedIn grouped all UCSB contacts into this cloud, or I never really branched out during college. I’m hoping it’s the former! Now go have some fun with LinkedIn’s new toy.
I’m sitting in my entrepreneurial finance class taught by Duke Bristow. We have been discussing the “gold bug” that everyone has caught over the past few years. When asked whether inflation is better hedged with houses or gold, my professor, a Financial Economics PhD, argues the case of homes on the following points:
With inflation, house prices go up;
By owning a home, one can either rent it for cash flow, or live in it for avoided rent;
There is a tax benefit to owning a home; and
By financing the home loan with a fixed-rate loan, you (as the borrower) can put the inflation risk on the lender (i.e. the bank).
I’ve never been sold on the case for gold, particularly because it doesn’t throw off any cash. These four points are the nail in the coffin for me (for the time being).
I’m back from New York after meeting with executives at a lot of top Wall Street firms, both sellside and buyside. During my meeting with Tim Coleman, Head of Blackstone’s Restructuring & Reorganization Group (and also a fellow Gaucho!), he cited the strength of Blackstone’s culture as a key asset, an asset cultivated, in part, by an annual 360 review among Blackstone employees. According to Tim, the 360 review process prevents coworkers from unfairly “dumping” work on others. Wouldn’t you think twice before unreasonably working someone until 4AM if you knew that person would have the chance to air the dirty laundry at the end of the year? In Tim’s world (i.e. Wall Street), a 360 review seems like a great check for what sometimes can be a brutal culture.
This morning I ran across 360 reviews again while reading a great article about the rise of BlackRock. 360 reviews are an aside at the end of the article, but the mention of their use at another great firm began to make me think further about their use. Should companies include a 360 review in their annual review process? (more…)
Some classmates and I had the chance to sit down with Marshall Heinberg, the head of Oppenheimer’s investment banking practice, for an overview of his firm and an outlook on the investment banking industry. Mr. Heinberg’s insights were unique and bold; below are three general takeaways from our conversation.
If you’re an MBA student looking to get into banking, he suggested that you consider industry versus product roles carefully. He recommends finding a career that will provide you with a depth of non-commoditized intellectual knowledge. I took this to mean select industry coverage over product investment banking, as industry coverage gives you the chance to develop a deep knowledge base of a particular industry, which brings me to the next great insight… (more…)
Ever wonder why the semiconductor industry is cyclical? I did. Apparently the answer lies in a concept called the “Bullwhip Effect”, which is the notion that the standard deviation of demand is amplified up the supply chain. In other words, if consumer demand has a standard deviation of 10, wholesaler demand standard deviation may be ~20, and manufacturer demand standard deviation may be ~30. Below is a brief summary of the causes of the Bullwhip Effect and a few solutions to mitigate it.
Order Synchronization – if many customers sync their ordering timing, volatility of supply chain increases (more…)
Call it an old habit, or an undying passion, but I constantly flip through GigaOM and TechCrunch articles in my RSS feed. I peruse 100+ articles per week; and here are a few companies that have caught my eye over the past month: Flipboard, About.me, Airbnb.com, Greplin and Instagr.am. I am particularly excited about Flipboard, genius, though I’m afraid that if my girlfriend sees this company it will further place me on the hook to buy her an iPad. C’est la vie…
A self-proclaimed “credit geek”, Sheldon Stone, a co-founder and portfolio manager at Oaktree Capital Management, held a guest lecture in my finance class. Mr. Stone, a guest of my professors Suh-Pyng Ku and Randolph Westerfield, provided an interesting overview of his firm, the high-yield debt market and his investing approach. Mr. Stone manages approximately $16B in high-yield bonds and he is at the forefront of his industry, so I feel lucky to have had the chance to listen to one of the great investors in today’s high-yield bond market. What follows is a summary of my notes, so please excuse any gaps, as Mr. Stone was covering a lot of topics at a quick pace.
To lead things off, Mr. Stone provided an overview of his firm, (more…)
I came across a great quote from Howard Marks, the Chairman of Oaktree Capital Management. In his memo titled Tell Me I’m Wrong, he states, “As I see it, every investor is either predominantly a worrier or predominantly a dreamer.”
I love this quote because it succinctly sums up the personality trait differences and the job function differences of debt versus equity holders. Which one are you?