As Baron Rothschild, the 18th century British nobleman and member of one of the wealthiest, long-lasting and powerful business dynasties in modern history said: “The time to buy is when there’s blood in the streets.”
Let me tell you how I learned this lesson… (and you can learn a lot more about the lessons I’ve learned here…)
Investing during the Hong Kong 1967 leftist riots
In 1980, I joined a real estate planning and consultancy firm in Hong Kong.
At one business lunch I had the good fortune to be seated next to a chap named Len Dunning, an Englishman who had spent most of his career working in the British colonial service.
Len was working with the government in Hong Kong in a senior role in trade development. This was 1980, and Len had already been in Hong Kong for more than 20 years.
Over lunch the conversation turned to real estate. He told me about how he had bought real estate in Hong Kong during the 1967 riots during the cultural revolution.
This was an utterly desperate time in Hong Kong’s modern history. Mao’s Red Guards were threatening to overrun the territory. It was a time of violence and great concern for the British government that still held sway over Hong Kong prior to the 1997 handover. Hong Kong was wracked with uncertainty. Fear reigned.
Len hadn’t just bought any old property, like a little flat in the cramped quarters of the city. No, he had bought three houses – on The Peak, no less.
The Peak is Hong Kong’s ultra-prime residential neighbourhood. It overlooks the harbour and the central business district and is home to Hong Kong’s most expensive property. It’s like Knightsbridge or Belgravia in London, or property overlooking Central Park in New York. We’re talking best of the best here.
Houses on The Peak are rare in Hong Kong. In the real estate world, they are the equivalent of a Rembrandt painting. At that time there were probably no more than 500 standalone houses on Hong Kong Island. Today that figure is less than 300.
To give you a recent sense of pricing, in 2016 a 9,212 square foot house on The Peak sold for just over US$270 million.
But in 1967, the Hong Kong property market was on its knees due to the riots, violence and uncertainty. Hong Kong’s very future was at stake. Who in their right mind would be buying real estate in such circumstances?
Len Dunning did… and he was one of only two people I knew who had aggressively bought property during the 1967 riots. The other is now the 20th richest person in the world, according to Forbes, and worth nearly US$32 billion. Those blood-in-the-street purchases lay the foundation of his wealth today. His name is Li Ka-shing, and he’s known as “Asia’s Warren Buffett”
At the time of my lunch with Len, the Hong Kong real estate market was on a rocket to the moon. In the previous three years, the price of residential real estate had gone up each year by between 100 percent and 125 percent.
This was a real estate bull market to end all bull markets. It was a bubble for sure. I certainly had not seen anything like this anywhere.
Len confided that he was looking to sell the houses. He was approaching retirement age in the not-too-distant future and implied the money from the house sales would be useful in funding his retirement. That was an understatement if there ever was one.
Those houses at the time would have fetched tens of millions of Hong Kong dollars. Today, if they are still standing, their value would be measured in hundreds of millions – each!
Buying when there’s blood in the streets is hard – make no mistake. You have to go completely against the grain, against popular opinion. You have to shout down the voices in your head that tell you to stay on the sidelines at best, or panic at worst.
But investing during these times can lead to enormous wealth.
How to find these opportunities
First, remember these crisis moments don’t just let you buy property cheaply, they give you opportunities to buy the best property cheaply.
This is a massive advantage for you! Prime real estate prices can fall just as much as the values of lower-grade property.
Crises offer up the best opportunities to buy the most desirable property that would otherwise be out of your budget. This is how you overcome the fear. You remind yourself that you are buying the best.
Second, Len bought some of the scarcest residential property in Hong Kong… It’s one thing to buy great property, it’s another to buy rare real estate. When life returned to normal, these properties were highly attractive to wealthy renters and they achieved great rental returns for years. This was “top of the food chain” real estate.
Blood-in-the-streets moments allow you to buy the best assets. And it can lead to great wealth.
Article by Stansberry Churchouse