Mr. Dennis Gartman is the author of the Gartman Letter, a subscription based investment newsletter (http://www.thegartmanletter.com/). One of Mr. Gartman’s well known writings is Gartman’s Rules to Trading representing things he’s learned in a long career of investing.
In this post I will attempt to take a few of his rules and apply them to multifamily acquisitions. Buying apartments, as an investment class, has many similarities to other investments in that many people make the same mistakes. To wit, Mr. Gartman’s Rule #1:
RULE #1. Never, ever, under any circumstance, should one add to a losing position … not EVER!
Meaning… in multifamily acquisitions no mater how much you may “love” that deal that’s losing $150,000 each of the last two years, under no circumstances should you contemplate purchasing a sister property in that same market. As if that will make everything all better. No Gracie, it will not!
Building wealth requires knowing the winners from the losers in your field of play. Doubling up in the same field (read: market or sub-market) will not right the ship on a losing proposition.
RULE # 2. Never, ever, under any circumstance, should one add to a losing position … not EVER!
As you can see, he is very sincere about Rule #1. Mr Gartman remarks:“Averaging down into a losing trade is the only thing that will assuredly take you out of the investment business. This is what took LTCM out. This is what took Barings Brothers out; this is what took Sumitomo Copper out, and this is what takes most losing investors out.”
RULE #10. To trade/invest successfully, think like a fundamentalist; trade like a technician.
A further quote from Mr. Gartman: “It is obviously imperative that we understand the economic fundamentals that will drive a market higher or lower, but we must understand the technicals as well. When we do, then and only then can we, or should we, trade”.
In real estate parlance; is the property fundamentally sound? Does the greater market and , specifically, the sub-market meet or exceed stated investment criteria?
Has Engineering willfully signed off on the acquisition or were they “coerced” to provide a certain conclusion? (News flash: yes, people sometimes fool themselves and others to meet objectives that are un-related to the actual asset being acquired). Are most of the known warts accounted for in the financial forecast?
In apartment speak consider the “technicals” to mean catagories such as financial underwriting, demographic trends and their impact, retail growth in the market and job creation. And within job creation, being able to break down the type of job creation in the market; projected and near term growth in professional versus service sector jobs, as an example.
Rule #13. Do more of that which is working and less of that which is not.
In life, as investors and as property managers… what better mantra!