Brandon Donnelly — Daily insights for city builders. Published since 2013 by Toronto-based real estate developer Brandon Donnelly. — Page 682

https://twitter.com/10kdiver/status/1340366631365562370?s=20

I came across the above Twitter thread last night before bed and I thought it was great. It's about the importance of thinking exponentially, as opposed to linearly, when it comes to finance and investing.

In it, the author provides a quick rule of thumb to help reframe our mind when it comes to compounding. It's called the "rule of 72" and it works like this.

To calculate the approximate number of years to double your money, simply take 72 and divide it by the annualized rate of return (%). For example, if you had an annualized rate of return of 10%, this rule of thumb would tell you that you're going to need 7.2 years to double your money.

If the annualized rate of return were to increase to 18%, it would now only take you 4 years to double your money. Of course, this rule of thumb is an approximation. It only really works within a certain band of returns.

If the annualized rate of return were 100%, this formula would spit out 0.72 years, whereas an annualized rate of return of 100% actually means that you're doubling your money in the span of one year.

It's a rule of thumb. The reality is that compound returns are incredibly powerful over the long-run, not only for finance and investing, but for life in general. Worthwhile things take time. If you've got the patience and discipline, the long-run curve ends up looking pretty sweet.

Between 1985 and 1995, Los Angeles' retail bank branches were robbed some 17,106 times. In 1992, which was the the city's worst year for robberies, the number was 2,641. This roughly translated into about one bank robbery every 45 minutes of each banking day. All of this, according to this CrimeReads piece by Peter Houlahan , gave Los Angeles the dubious title of "The Bank Robbery Capital of the World" during this time period.

So what caused this? Well according to Peter it was facilitated by two phenomenons. One is indigenous to Los Angeles and the other was a result of the party scene that started to emerge in the city in the late 1970s during the disco era. Peter argues that this spike in robberies was the result of (1) the city's sprawling car-oriented urban landscape and (2) its widespread use of cocaine at this time.

The former allowed robbers to quickly flee the scene (many banks were located near highway on-ramps) and the latter is what seemed to motivate people to actually do it. They needed a way to fund their addictions. By the early 1990s, it was estimated that up to 85% of all bank robbers in Los Angeles were suffering from some sort of drug addiction, and the surveillance photos seemed to reinforce this. Repeat offenders were noted as looking progressively worse.

But what's perhaps most interesting to this blog audience is point number one. To what extend did the built form of the city actually facilitate this kind of behavior? Surely Los Angeles wasn't the only place that started enjoying disco music, and some other things. And so did bank robberies, in a way, get coupled to the city's labyrinthian freeway network? Was this the cover that robbers needed to make them feel like they weren't going to get caught?

For Peter's full story, click here .

Photo by Dillon Shook on Unsplash

When I was in grad school studying architecture and real estate, the Zell/Lurie Real Estate Center used to run a regular lunch series with real estate executives. The way it worked is that executives would come in to the school and 15 or so students -- all of whom were studying real estate -- could sign up to have lunch with them in a boardroom. I can't remember if the school provided us lunch or we had to bring our own, but either way, you had an hour to hear them talk about the industry and ask them whatever you wanted to know.

One time somebody asked a question about what courses they should take outside of their business and real estate classes. And I'll never forget what the executive said. His recommendation was to take courses that were as far away from business, finance, and real estate as possible. He said take fine art history classes, learn about ancient civilizations, or whatever. Just take classes that force you to think a little differently than everybody else.

The reason, I think, this resonated with me so much was because I had a certain amount of academic insecurity at that moment in time. I was coming from an architecture and design background and my classmates were former investment bankers and management consultants, all of whom had a far better grasp of "the numbers" than I did. It meant that real estate recruiters didn't want to talk to me because I was the square peg for their round hole.

But being a square peg really motivated me.

I remember walking into the program director's office at that time and requesting that I be put into what was considered to be the more difficult real estate finance class offered at Wharton. He said that he didn't recommend it. Non-MBAs (which I was at the time) can't typically handle it. And if he put me into it, I would likely come back to him crying about how hard it was. I asked him to put me in it and said that I would come back to show him my "A." He put me in it and, yes, I got an "A."

But at the end of the day, the point that this executive was making at the lunch was that the math and mechanics behind things like cap rates, IRRs, and DCFs is not rocket science. Real estate is not rocket science. You of course need to know how this stuff all works, but it is not the be-all and end-all. The other critical parts of this are more art than science. What are the assumptions that I am making as part of my analysis? What do I believe about the future of the world? To answer these questions, you need think critically and laterally. And having a different perspective can help you do exactly that.

This was true back in 2008 and it's still true today.