From analysis to action: the journey from market commentator to investment strategist

If you are a real estate researcher working in the industry for several years, you may wonder how to take your career to the next level.

How can you position yourself to go beyond presenting what data shows to communicating what it means?

How can you be ready to answer the question “So what?” when presenting your findings?

How do you move from being a market commentator to an investment strategist?

If you want to progress to an investment strategist, here are six steps you need to take.

Step one: understand the difference between academic and investment research

Academic research focuses on discovering universal truths and pushing the boundaries of human knowledge. It requires a high level of evidence and certainty before making statements.

There is a lower bar when working in the real estate industry as a researcher, where decisions must be made based on imperfect information with limited time. Even when you prefer to have more data, undertake more analysis, or do further research, you often must express a view with conviction.

A critical competency to develop is making a judgment call despite uncertainty. Future outcomes aren’t predictable; you need to chart a path anyway. That is the job of an investment strategist. It might not feel comfortable, but you need to accept that.

Step two: know that levels of conviction are a poor guide to the quality of judgment

There are a lot of people in the real estate industry who have firmly held views and big egos. They express their views with high levels of conviction. Understand that the conviction other people communicate has little to do with the quality of their judgment. People’s confidence does not indicate how right they are.

Remember the Bertrand Russell quote: “The whole problem with the world is that fools and fanatics are always so certain of themselves, and wiser people so full of doubts.”

Tune out others’ attempts to communicate conviction—instead, position to trust your judgment.

The following steps discuss building your judgment skills so you have confidence in your decision-making.

Step three: know your personality traits and how they affect your judgment

To trust your judgment, you must know yourself.

Your personality traits, cognitive biases, emotional states, and motivations can significantly impact how you perceive and process information. They can also affect how you react to uncertainty and risk.

So, for example, it is essential to know whether you are a pessimist or an optimist. People’s tendency to focus on positive or negative aspects of a situation varies. You need to know where you sit on the scale to calibrate your judgment appropriately. You need to see if you are more prone to overconfidence and confirmation bias or underconfidence and negativity bias.

Similarly, some people are more risk-averse than others. You must identify whether you are more cautious or confident by nature and how these traits may influence your judgment.

Step four: keep calm and carry on.

Your judgment skills vary in relation to your stress levels.

Stress can be acute or chronic, depending on the duration and intensity of the challenge.

Acute stress is typically short-lived. It prepares the body and the mind to cope with the challenge. This type of stress can enhance some aspects of judgment, such as attention, focus, and memory consolidation. Hence, a deadline can be helpful.

Chronic stress is prolonged and impairs the functioning of the body and the mind. It can weaken many aspects of judgment, such as impulse control, emotional regulation, and risk assessment.

Chronic stress can also bias judgment towards negative or threatening stimuli. It limits our ability to consider alternative perspectives, plan, or think flexibly.

Furthermore, it makes us focus more on the short term.  

In real estate, market downturns are a cause of significant stress. Many may find their judgment impaired. For those able to keep calm and carry on, this is the source of opportunity.

But how can you control your emotions? Maintain a long-term mindset. Knowing that downturns are normal, real estate is cyclical, and property is a long-term investment will help you keep your head while others lose theirs.

Step five: know you are using suitable mental models

Critically evaluating your thought processes can help you build confidence in the conclusions you reach. If you use the right tools, your judgment will likely be sound. Use the following approaches to thinking.

Reason from first principles

Generally, and particularly in a slow-moving industry like real estate, people do things in a particular manner because that is how they have been done before. Standard assumptions and long-standing conventions can shape our thinking. But reasoning by analogy can send you down the wrong track.

A better path to sound judgment comes from breaking complicated problems into essential elements and testing key assumptions. This is how to arrive at first principles – the fundamental truths or assumptions that underlie a situation. You will reach a better answer if you start with what is true rather than what is widely believed.

So, ask why do I think this, how do I know this is true, what evidence is there to back up my view and how do I know I am correct? Doing so will draw out the relevant first principles and provide a solid foundation to build your judgment.

Embrace active open-mindedness

Consider alternative hypotheses, perspectives, and evidence that may challenge or contradict your views. Seek out disconfirming information, test your assumptions, and update your beliefs when warranted.

Treat your beliefs as hypotheses to be tested, not treasures to be guarded. As the famous organizational psychologist Adam Grant says, “Embrace confident humility: argue like you’re right, listen like you’re wrong.” Seek feedback from others who can provide different views or reasoned critiques on your analysis. Build teams with diverse perspectives and nurture a culture that encourages challenge.

Be willing to change your mind if that’s what it takes to be correct. As judgement expert Shane Parrish puts it, “Admitting you’re wrong isn’t a sign of weakness, it’s a sign of strength.” Update your views regularly with a readiness to alter your perspective. When the facts change, your view should change, too.

Be a second-level thinker

Howard Marks has written extensively about the need for second-level thinking for investment success. He says, “First-level thinking is simplistic and superficial, and just about everyone can do it….. All the first-level thinker needs is an opinion about the future, as in “The outlook for the company is favorable, meaning the stock will go up.”

In contrast, he says, “Second-level thinking is deep, complex, and convoluted.” It goes beyond conventional wisdom and requires understanding how your view of the future (or range of possible futures) differs from the consensus view reflected in the market price.

Be a second-level thinker. Identify what the market is missing and, therefore, why prices may diverge from intrinsic value. To be a driver of outperformance, you need this capability.

Use the inside and the outside view

When considering a project, real estate professionals typically consider the specifics of an individual situation, gather related information, and then develop a particular scenario for the future. Typically, this inside view is too optimistic and held with excessive conviction.

Complement the inside view with an external perspective, the outside view. The outside view is based on what has typically happened in similar projects.

Know the base rate – what tends to happen on average – to reduce overconfidence and allow more appropriately calibrated predictions and better-informed decisions.

Gather data to understand what typically happens and combine it with knowledge of the specifics of the task in hand to make better assumptions about, for example, lease-up periods, the likelihood of lease renewals, operating expenses, the length and costs of renovation projects, and resale value of a property at the end of an investment period.

Step six: communicate to influence

Honing your judgement skills will count for little unless complemented by a focus on communication. Be conscious of your communication style. Dedicate time to ensure that communication is effective.

You need to present your messages with confidence and conviction that can inspire others to trust you and follow you. Use verbal and non-verbal cues, such as tone of voice, body language, and eye contact, to enhance your communication style.

Keep messaging simple, use precise language, and avoid technical terms. Be concise and demonstrate decisiveness. Ensure that messages are tailored for a less analytical audience. For example, highlight the critical takeaways data reveals through examples and analogy.

Be deliberate about achieving influence. Build strategic relationships. Know who you will want to influence and build a strong connection with them. Be helpful to them. They will be ready to reciprocate, and those who like you are more likely to be influenced by you. When social proof is working against you, frame market calls as early rather than contrarian and create a sense of scarcity to provoke action.

A version of this article originally appeared in The Property Chronicle. To read other articles I have written for The Property Chronicle, please click here.