Independent Thinking in a Noisy Market
A friend sent me Seth Klarman’s Margin of Safety 16 years ago and it had a profound impact on how I think about investing, downside protection, and identifying value investing opportunities. Such a profound impact that it came up in conversation last week and prompted me to re-skim. Two quotes struck me:
- “In investing, nothing is more important than the ability to think independently and avoid groupthink.”
- “Risk is not inherent in an investment; it is always relative to the price paid.”
As an industrial real estate investor, these principles feel especially relevant as we navigate uncertain times with tariffs in a higher interest rate environment. The concept of margin of safety is foundational in our approach and a big reason we landed on industrial outdoor storage (IOS) as our current investment thesis. In IOS, margin of safety comes from:
- Neutral to slightly positive leverage meaning strong cash flow even if interest rates don’t go down
- Below-market leases in infill locations, easy to replace cash flow if tenant blows out with potential for upside
- Scarcity of zoned industrial land near ports, freeways, and logistics hubs meaning you are protected from an influx of supply
- Replacement cost advantages often purchasing at or below replacement cost
- Low capex needs compared to traditional industrial or multifamily
- Covered land play with the ability to add density should demand for it arise
The current uncertainty around tariffs has translated to a short term softening in the market and reduction in pricing for IOS properties. We believe the reduction in pricing builds in a margin of safety which derisks our investment and creates outsized returns in the long run. I know this runs counter to the current groupthink but I guess sometimes you have to zig when others zag to create alpha.
Please reach out if you would like to learn more about industrial outdoor storage and/or are interested in joining us in one of our upcoming offerings.
