All That Glitters is Not Gold


By David Merkel of Aleph Blog

There is a benefit to reading books on marketing for those that will never be marketers: it will immunize you to sales pitches.  Think of it as studying the strategies of the enemy.  When you talk to salesmen, you can flip their words back at them, or tell them “no,” to the questions that have a guaranteed “yes” attached to them.  Better, if you want, you can tell them, “Stop. I know your tactics.  Cease the sales language and answer these questions I have…” Maybe they will cease.  If not, leave.  There are many places to buy, and some people that will listen to you elsewhere.

Some weeks ago, I was traveling, and heard an ad for a “financial seminar.”  This one sounded better than most, and featured the teachings of a well-known writer.  For fun, I signed up for the free seminar, just to see what would happen.

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In reading what little I had before the seminar, I concluded that the only way of doing what they claimed was private ownership of high cash flow properties or businesses.  When I went to the seminar, I was not disappointed — that was the main idea.  Secondarily, they said you could get non-recourse financing easily, or equity limited partnerships to finance you.  (Money grows on trees…)

The first problem is this: mispriced properties are few and far between, and there is competition to buy them, generally.  Second, financing for property investment is scarce, especially for anything where the lender has no recourse to the borrower.

Passive Income

Passive income is an idol in these shows.  It seems like free money, but in practice it is difficult for investors to buy properties cheaply, finance them, and get rents that are far higher.

If it were that easy, they would create a REIT and do it themselves.  I asked the presenter at the end of the presentation: “If there are that many high cash flow properties available, why doesn’t a REIT buy them?  After all, they can finance more cheaply than you.”  Response: “What’s a REIT?”

That’s more than the wrong answer; it means you don’t know what you are doing.


There was a lot of framing going on.  The package was worth $5000, but we have a special offer for $600.  Today for you?  $200.  After some people leave — “Yes, $200, but your spouse can some too.”  Oh and if you buy today, we’ll throw in these extras…

I suspect there were shills in the audience, who went back to buy.  I looked back several times, and estimated that 50-60 out of 200 went back to buy.  At the end, only 30 remained to hear the ending advice.

Regardless, the gross revenue of the day was around $6000, which supposedly covered only the cost of the presenter and the hotel room.  I have my doubts.

Other  Notes

Twice the presenter mentioned that the company that the author worked with was publicly traded.  Well, sort of, it deregistered in Spring 2011, and the company is worth less than $10 million today as it trades on the pinks.  What can you say for a company with a negative net worth, normally negative income, and very low trading volume?  (Leave aside the lawsuits…)

The presenter appealed to Buffett on not diversifying, but Buffett tells average investor that they are best invested in mutual funds.  Being undiversified carries with it the idea hat one is incredibly smart, and able to do far better then the averages.

The reason that they put forth a private market strategy is that it can’t be falsified.  That is the great thing about selling people on investing in real estate.  There is no way to put forth an audited track record.  You can tell anecdotes, and people buy your educational materials.


Be skeptical.  Nothing good is easy.  Anything advertised in investing can’t be that good.  I knew this, and my experience proved it as I reviewed the charlatans.

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David J. Merkel, CFA, FSA — 2010-present, I am working on setting up my own equity asset management shop, tentatively called Aleph Investments. It is possible that I might do a joint venture with someone else if we can do more together than separately. From 2008-2010, I was the Chief Economist and Director of Research of Finacorp Securities. I did a many things for Finacorp, mainly research and analysis on a wide variety of fixed income and equity securities, and trading strategies. Until 2007, I was a senior investment analyst at Hovde Capital, responsible for analysis and valuation of investment opportunities for the FIP funds, particularly of companies in the insurance industry. I also managed the internal profit sharing and charitable endowment monies of the firm. From 2003-2007, I was a leading commentator at the investment website Back in 2003, after several years of correspondence, James Cramer invited me to write for the site, and I wrote for RealMoney on equity and bond portfolio management, macroeconomics, derivatives, quantitative strategies, insurance issues, corporate governance, etc. My specialty is looking at the interlinkages in the markets in order to understand individual markets better. I no longer contribute to RealMoney; I scaled it back because my work duties have gotten larger, and I began this blog to develop a distinct voice with a wider distribution. After three-plus year of operation, I believe I have achieved that. Prior to joining Hovde in 2003, I managed corporate bonds for Dwight Asset Management. In 1998, I joined the Mount Washington Investment Group as the Mortgage Bond and Asset Liability manager after working with Provident Mutual, AIG and Pacific Standard Life. My background as a life actuary has given me a different perspective on investing. How do you earn money without taking undue risk? How do you convey ideas about investing while showing a proper level of uncertainty on the likelihood of success? How do the various markets fit together, telling us us a broader story than any single piece? These are the themes that I will deal with in this blog. I hold bachelor’s and master’s degrees from Johns Hopkins University. In my spare time, I take care of our eight children with my wonderful wife Ruth.

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