Decision Making for Real Estate Investors with Gleb Tsipursky - CREPN #252
Release Date: 06/11/2020
Commercial Real Estate Pro Network
Well, it's funny, you bring that up, then I know this is not supposed to be an insurance related answer, but I do have a little bit of a story here that I'd like to share. So very recently, I was I was under contract to buy this property, great deal, great location, you know, just I mean, it checked all the boxes. This gentleman did not have the right coverage did not have the right dollar amount covered towards this fire damage and I will tell you he lost close to a million dollars because of that.info_outline Ultra Wealthy Investment Solutions with Richard Wilson - CREPN # 260
Commercial Real Estate Pro Network
Today my guest is Richard C. Wilson. Richard is a third generation Eagle Scout. He's also the founder of the Family Office Club, which has over 2000 registered investors. And his team offers a digital investor platform and sources direct investment opportunities for his 58 investor clients.info_outline BIGGEST RISK with Richard Wilson
Commercial Real Estate Pro Network
For my company, even though we have good managing directors, I think the BIGGEST RISK is myself, you know, I'm driving forward a ton of the new content. You know, when I when I hang up here, we're doing a 1000 person webinar. And I've got someone on my team that could do a webinar on many different topics, but not the same topics I could, you know, fluidly and so it's kind of like a key man risk.info_outline Richer Than A Millionaire with Bill Danko - CREPN #259
Commercial Real Estate Pro Network
Today my guest is Dr. William "Bill" Danko. He is the co author of The New York Times bestseller, the Millionaire Next Door, and also his newest book, Richer Than a Millionaire.info_outline BIGGEST RISK with Bill Danko
Commercial Real Estate Pro Network
I think when people are just so blind to well, for example, in Miami Beach right now. There are a lot of people with very beautiful houses on a flood plain or a rising ocean. And one of the things that they're doing in Miami is raising the roadways and creating culverts to drain off the water. What seemed like a good idea at the time to build a house next to the ocean is, in retrospect, not a very good idea. So sometimes we bring this on ourselves.info_outline Commercial Real Estate BRRR with Anthony Scandariato - CREPN #258
Commercial Real Estate Pro Network
Today my guest is Anthony Scandariato. Anthony is the co founder of Red Knight Properties. They are a multifamily syndication firm. It's a vertically integrated doing both investing and property management. And in a moment we're going to speak with Anthony about both multifamily and property management more specifically.info_outline BIGGEST RISK with Anthony Scandariato
Commercial Real Estate Pro Network
the BIGGEST RISK is to me it's always on the buy. So you have to always buy right you have to always run your numbers. You To run a sensitivity analysis, you have to understand, you know, if downside base case and upside, and if the downside scenario still makes sense, then it's a good deal. So the BIGGEST RISK is people not buying right? You know, we always not running these analysis because markets change, and right now they're changing every day.info_outline Machine Learning AI and Commercial Real Estate with Alex Fleiss - CREPN #257
Commercial Real Estate Pro Network
Today. My guest is Alex Fleiss. Alex is the CEO of RebellionResearch.com. They're an artificial intelligence company. He's also an instructor at Cornell Engineering. And in just a minute we're going to speak with him about AI and the potential to disrupt real estate.info_outline BIGGEST RISK with Alex Fleiss
Commercial Real Estate Pro Network
'd say the BIGGEST RISK is the unforeseen risks without a doubt, which obviously is manifest in the COVID-19 Black Swan event or the S&P debt downgrade of the US government in 2011. The unforeseen risks is always always the worst risk, but it's very, it's very hard to worry about risk, you know, because there's, it's almost a it's really endless.info_outline People Relationship Key to Deals with Omar Khan - CREPN Radio #256
Commercial Real Estate Pro Network
Today my guest is Omar Khan. Omar is a Chartered Financial Analyst. He's advised on over 3.7 billion of capital financing and merger and acquisition transactions. He's the principal at boardwalk wealth you The syndicated multiple large deals across the US. And in just a minute, we're going to speak with him about raising capital, working with institutional investors.info_outline
Gleb Tispursky 0:00
But what happened was that they were letting their intuitions lead, letting the gut reactions lead and their gut reactions told them that we can't afford to lose. We can't afford to lose our social status in the eyes of the tribe, in the eyes of our peers, and therefore, we'll make these bad decisions, which will prevent us from losing social status.
Welcome to C R E P N Radio for influential commercial real estate professionals who work with investors, buyers and sellers of commercial real estate coast to coast whether you're an investor, broker, lender, property manager, attorney or accountant We are here to learn from the experts.
J Darrin Gross 0:39
Welcome to Commercial Real Estate Pro Networks CREPN Radio, Episode Number 252. Thanks for joining us. My name is J. Darrin Gross. This is the podcast focused on commercial real estate, investment and risk management strategies. Weekly we have conversations with commercial real estate investors and professionals provide their experience and insight to help you grow your real estate portfolio. Let's get into the show. today. My guest is Gleb Tispursky. He is the CEO of Disaster Avoidance Experts. And he's on a mission to protect leaders from dangerous judgment errors, known as cognitive biases, which devastated bottom lines and bring down high flying careers. He's authored hundreds of articles and written multiple best selling books, including Never Go with Your Gut, The Truth Seekers Handbook and his newest book, Blind Spots Between Us. He received his PhD in History of Behavioral Science at the University of North Carolina Chapel Hill. And in just a minute we're going to speak with Gleb about decision making for your business. But first a quick reminder. If you like the show, CREPN Radio Please let us know. You can like, share and subscribe. Also, if you'd like to leave a comment, we would love to hear from our listeners. And if you would also like to see how handsome our guests are, be sure to check out our YouTube channel. And you can find that at commercial real estate pro network on the YouTube. With that, I want to welcome my guest Gleb Welcome to CREPN Radio.
Gleb Tispursky 2:29
Thank you there. It's a pleasure to be here.
J Darrin Gross 2:32
I'm delighted that you were able to join us today. And looking forward to our our talk this afternoon. Before we get started, if you could take just a minute and share with the listeners a little little more about your background.
Gleb Tispursky 2:48
Sure. So I've always been fascinated with decision making ever since I was a kid because the typical way that we are taught to do decision making. The way you've probably heard a lot is to go with our gut, follow into Question. That's the most typical advice about decision making. everyone hears that. Well, my parents were very much gut oriented decision makers. So they felt something was right. Their intuition told them it was right. And they did it. Unfortunately, often their intuition opposed each other's intuition. So for example, my mom liked to buy nice clothing, and my dad was kind of a cheapskate. So she'd go out and she'd buy a $50 sweater, and she'd come home and he'd yell at her say that, you know, sweater shouldn't cost anything more than $20 and stuff like that. And then they'd be off and fighting and so on. And already as a kid, I said, that was kind of dumb. It wasn't really helpful. The question wasn't resolved, and they still kept fighting and fighting and fighting wasn't good for their relationship. So and it impacted me as a kid, obviously, to hear my mom and dad yell at each other. But the worst time was this one time when my dad so my dad was a real estate agent, and he had a variable salary based on commissions. And there was a period of about six months where he made a lot of money, but he hid it from my mom. So he made Available money probably didn't want her to spend on sweaters. And so she bought an apartment elsewhere and leased it out to some folks. And about a couple of years, my mom found out about it. And she was so mad. She was so pissed there was a huge big blowout fight actually end up separating for a while. And so I lived with my mom and didn't see my dad much in that area. They eventually reconciled but you could never really trust them again. So I saw that my parents make terrible decisions about financial matters. And so that really impelled me to try to figure out why do we make such bad decisions? Why does nobody see set us down? Why did nobody sit me down? And tell me now Hey, kiddo, here's how you make decisions that my parents didn't do that. I wasn't taught how to make good decisions in school, or even college. Once I got to college, nobody taught me to make good decisions. They taught me math. They taught me geography but not decision making. Even though decision making is so fundamentally important. Everything, everything, everything we do in our lives, from business, to personal lives to relationships. I mean, Let's not even talk about relationships. I mean, there's a reason there's a 40% divorce rate in this country. So, I decided to study decision making, how we make decisions badly and how we can screw up our decisions and how we can fix the screwed up decision making that we tend to make. So I studied this topic and I started as I started studying this topic, people became interested in what I had to say. So I became a trainer, consultant and coach, which I've been doing for about 20 years and working in this field. At the same time, once I exhausted the very slim pickings that were on how to make good decisions and popular media, I went decided I need to actually study this formally. So I went in Taka Jima, and that's where I got my PhD in history of behavioral science, looking at the cognitive neuroscience and behavioral economics of decision making. So cognitive neuroscientists and behavioral economists, they spent about 15 years in academia, including seven years, Ohio State as a professor teaching about this stuff and researching it. And so that's where my the book never goes. Got how pioneering leaders make the best decisions and avoid business disasters came about combination of by consultant coaching experience, plus the actual cognitive neuroscience and behavioral economics of decision making. So that's what my background is like. And of course, all my other books also touch on various things. The blind spots between us talks about professional personal relationships, and the true secrets handbook talks about decision making in personal life.
J Darrin Gross 6:26
Got it. That's fascinating life story from a standpoint of being a something that affected you in your childhood, how it made such a big impression and kind of a drove your, your career that's, that's really cool because I think so many times, people, especially if there's any kind of pain involved, but you hear about more people trying to avoid something or, or and I guess in a way, maybe that's it, that's what you're trying to do is avoid the pain of your childhood by understanding it better.
Gleb Tispursky 6:57
That not so much the pain of my child output, but I really care about people. I've always been someone who care who has a value side of utilitarianism, meaning wanting the most good for the most number. You know, it always hurt me to see people suffer. So the fact that so many people suffer, I mean, I suffered as a kid. And you know, I learned a good decision making by myself, but it didn't have to teach to others. The reason I got interested in teaching about it to others in popularizing it and helping leaders make better decisions was that this professionals and so make better decisions because I see all the suffering that comes from it. I mean, think about, let's say, the fiscal, you know, I grew up during the.com, boom and bust when in 1999, I was 18. When all the tech leaders were partying like it's 1999. And then just a couple of years later, there was the.com bust, when the people who are the heroes of the Wall Street Journal suddenly became zeroes. And so many people lost their life savings. So many people. It was a tragedy. I mean, I knew people who really suffered in that period. And so just seeing that was was terrible. For me to just to go through that, and even worse for the bad malicious decisions taken by the leaders of Enron, WorldCom and Tyco to hide their losses of these companies using fraudulent accounting methods. And so seeing the kind of bad decision making terrible decision making by these leaders really made me realize how important business leaders are to the lives of everyone around them. So that made me really passionate and fascinated with how I can make a difference by popularizing good decision making for everyone and especially for business leaders.
J Darrin Gross 8:34
Well, it's interesting, you know, when you think about some of the examples you cited there, I'm kind of curious. Do you have any kind of an insight or a Have you have you come up with a reason for any of those that you cited like the Enron and these others that the reason for the bad decisions?
Gleb Tispursky 8:58
Yes. So with Enron Main bad decision making came from actually what drives us to make decisions. So we talk about our gut, we talk about our intuition. But what is that? Well, it's about our emotions, our feelings. And what the research and decision making shows is that our feelings, our emotions, our intuitions, drive about 80 to 90% of our decisions, so when we just go ahead and let them drive our decisions. Now, unfortunately, our feelings our intuitions, they're not adapted for the other environment. They're adapted for the savanna environment, when we were living in small tribes of 15 people to 150 people when they were hunters, foragers and gatherers. And there are lots of things about the savanna environment, the tribal environment, that are not a good fit for the modern environment, but we're still have the instincts of going forward and making the decisions as though we're in the tribal span. So for example, for survival and thriving in the tribe, it was very important for us to climb the tribal hierarchy. We are the descendants of those who climb the tribal hierarchy and then fry them survived and spread their genes because the people at the top of the tribal hierarchy were the ones most capable of spreading their genes. There is a reason about 5% of us on the earth are descended from the great conqueror gang discount according to extend to recent research. So, there's a reason for that. So we are very strongly pushed to try to climb the social hierarchy to stay at the top of the tribal hierarchy. And the leaders of Enron, WorldCom and Tyco, you know, the burning embers of the world and so on. What we now know about them is that what drove them to make their terrible decisions to hide their losses was fear of failure, fear of being seen as losing social status among their peers. Now, the decision to use fraudulent accounting didn't really delay the reckoning by more than a year or two. And what they got a year more of bonuses for an exchange for what 1015 years of prison. And how much money did they lose while they were in prison compared to what they could have gained. It was terrible decision making on their part, because look at how much they lost. And it's not like they want they actually really seriously lost for using fraudulent accounting methods. But what happened was that they were letting their intuitions lead, letting the gut reactions lead and their gut reactions told them that we can't afford to lose, we can't afford to lose our social status in the eyes of the tribe, in the eyes of our peers, and therefore we'll make these bad decisions, which will prevent us from losing social status. So the fear of failure that drove them is actually when I do consulting and coaching for business leaders. I see it very often I see the fear of failure, the fear of loss, especially the fear of losing social status, you know, the top level when you have plenty of money. What really drives people a lot is not wanting to be seen as a failure or wanting to be seen as a success, and they often make really bad to say Because of that,
J Darrin Gross 12:01
So how can you guard against making decisions based on the fear of failure?
Gleb Tispursky 12:09
What you want to do is distance yourself from this social status seeking recognize that, hey, social status seeking is just an inherent part of what we do as human beings. It's very natural, it's very intuitive, in the same way, that it's very intuitive for us when we come across a source of sugar, you know, to eat as much as possible because in the savanna environment, you know, think about what happened if you came across some grapes or some bananas or some apples, it was very important for you to eat as much as possible in order to survive and thrive. We are the descendants of those who are able to do that, because the other people didn't the other answers the other people who are not ancestors because they died. So we are the descendants of those who were able to do it. Now when we come across a box of Krispy Kreme dozen donuts. We want to eat the whole dozen donuts. That's the intuitive thing. That's in natural thing for us to do that because we're driven to have all that sugar. Now you hopefully have learned over time and develop the mental habit that it's important to not eat a dozen donuts, you know, you want maybe one doughnut, you know two donuts, but you got to stop at the third donut. Don't eat more than more than two don'ts. Not everyone learned that which is why we have the obesity epidemic in this country. But still, hopefully you understand that that's a bad idea. Even though you might end up doing it. Sometimes we have low willpower and and not that I ever did it. So you want to make you want to understand that this is a bad mental tendency that comes around bad reactions. And you have learned to in to restrain yourself from eating all the sugar that you can. In the same way. You need to learn to recognize what are all the dangerous judgment errors called cognitive biases that our brain pushes us to make that our gut reactions, our intuitions when we just tell people to go with their gut pushes on To make, because of how our brain is wired, you need to learn about all of them. And you need to restrain yourself from falling into. And there are specific techniques for doing so. And the social status seeking is just one of those you need to learn to recognize when you are falling into that social status seeking mode, when you're afraid of losing steps in the eyes of those around you, and when that's driving you to make some terrible decisions that will hurt you and others going forward.
J Darrin Gross 14:32
So, you know, it's funny, you bring up the social status seeking mode, which makes me think of all of the social media kind of stuff where you know, most of it's like a highlight reel about everybody winning and, and, you know, I know there's been numerous studies done about just the dopa mean that you know, when you see the reactions to your post or whatever the that gives you a certain pleasure. So, If if that is, and I don't say that's that that's the the tell. But But if the from a decision maker standpoint, you know that you mentioned, you want to try and discipline yourself for not seeking that or be be wary of that fear of failure that that need for social status. So but but if you're somebody that's that's looking at potentially investing with somebody, are there ways that you can identify somebody that potentially may have this kind of fear of failure? You know, that you should be wary of I mean, if you were working, working with or investing in Enron at the time, was there anything that you could have identified or were, you know, things that you could have done to prevent or so you could have gotten out ahead of the crash.
Gleb Tispursky 15:56
So what we know what we know we have some research So I'm going to speak up from what the research shows. We know that leaders, CEOs, whether you know, leaders or financial firms, or other sorts of firms, when you see them appearing often in the media, that is a strong sign that they are overconfident, and that they are displaying social status in a way that's going beyond where they should be. So we know that, for example, we know that leaders who appear, the more often the CEO appears in the media, the more often the more they tend to overpay for a company that they buy. So if you're thinking about like a merger and acquisition, if the leader of a company that's about to do a merger and acquisition appears often in the media, there this is likely to be one of those many, many m&a is that fail. Now, m&a is failed rate of very high rate, they fail at a rate of about 80%. So about 80% of all mergers and acquisitions fail to create value, they destroy value, and the more A leader tends to appear in the media, the more of a failure will be, the less likely it will be to be a success and the more of a negative impact it will have. And there's many other so leaders who tend to appear more often the media who have if you look at the sentiment analysis of the kind of language that they use, which you as a potential investor can certainly look at the language and see if the love language is fluffy if the language is excessive, if the language is hypee, if it's hyping it up, then you're likely to see that later, the company will be worth less than it should have been worth compared to other companies where the leaders don't use the sort of hyped up language. So there is definitely tells that you that we know very clear tells based on the research in cognitive neuroscience that you can use to predict which companies are going to have leaders who make bad decisions, because of their excessive overconfidence, excessive over thing. So these are things that you want to really be careful about and watch out for. Now, leaders who tend to be in the background, those leaders are not don't get nearly as much credit as they actually should. So if you look at the kind of leaders who have the company result in the highest profits, it's very often leaders who are less grandiloquent who speak less, and who actually do more. And those are the leaders. The funny thing is those are not the companies that get the initial investment. They don't get the not kind of the Elon Musk Tesla going through the roof, but they are the companies that get the most profit, so they get the most revenue per share. And those are the companies that value bets that you want to be confident will actually earn you the most money. So that is, those are something those are just some of the many things that I talked about in my book. Never go with your gut. How pioneering leaders make the best decisions and avoid business ancestors. If you want to make smart financial decisions.
J Darrin Gross 19:01
And I appreciate you kind of going through that the majority of the audience is either real estate investor or looking to invest in real estate. And, you know, a lot of the deals that they're I mean, they're constantly making decisions, whether it be on a market or a, you know, a property underwriting a property, maybe be the team that they select property manager. On and on it goes. And, you know, it's funny because you you mentioned this and I think that there's a natural awareness sometimes of of what's presented or, or just the need to, you know, you have to do your homework, whether it be if you're dealing direct with the seller, or if you're looking to invest in a syndication or whatever, you've got to, you know, kind of lift the hood and and, you know, question The information and make sure you get an answer on that. Based on that, I'm just kind of curious if Is there a, like a strategy that you would recommend or, you know, suggest that people like real estate investors consider when investing?
Gleb Tispursky 20:21
Yes. So the book talks about strategies that are relevant, very relevant for investors. And for anyone else looking to make a good business decision. Of course, people who are making a decision in business about which vendor to select, and which whether they want to which clients to work with the client decide making a decision on whether to buy something, you have to make the same sort of decision as an investor. And I described two methods in the book which are fundamentally valuable in addressing a lot of cognitive biases at once. One for casual decisions, meaning casual decisions, which you don't want to screw up but you don't want to maximize where you want to get a satisfactory Good enough decision. And this is a method that takes only a couple of minutes. And it is something that you want to make sure you use multiple times throughout the day for any sort of moderately important decision that you don't want to scrub. There's also long and this is involves five questions. There's also longer eight step method that you want to use for more major serious decisions, when you're actually deciding on whether to take the big deal or not. Whether you're deciding to enter into a partnership or not something that really makes a major impact on your bottom line, and where you want to get the perfect answer or as perfect as possible, rather than a good offense. So but for the good offense. Let's talk about the five questions you want to ask about anything that you don't want to screw up. Let's say you're thinking about writing an email to a potential business partner, and you want to work out a nuanced issue as part of the email. So that's an email the serious email, you don't want to scroll down but it's not going to make her very pure bottom line. First question, you want to ask about five questions. What important information didn't I get fully consider? So what evidence didn't you take into account? Let's say you want to influence your business partner to take a certain decision? Now, have you considered all the reasons why they may not take that decision? That's often evidence that we don't take into account. So we just write the email hoping they'll ignore all the evidence, all the information that they that you would not want them to consider. However, the email would likely be much stronger if you think about their perspective. And if you take it into account and addressing in advance of their concerns, so that's information that you haven't considered now if you do consider it, you could revise your email to take those issues and count and be much better able to influence your business partner to make the decision that you want them to make. So that's the first question and that's an example of high implied second. What dangerous judgment errors Haven't I addressed in this situation? So What cognitive biases might be playing a role that you haven't considered? There are very many cognitive biases. My book talks about the 30 most dangerous ones for investing for deal making, for business leadership for all sorts of things. So you want to take a look at the 30 most dangerous ones, take a look at my book, never go with your gut. And if you want to look at the ones for the relationships, in particular, look at the blind spots between us but for business decision making, never go with your gut. Next one, what what a trusted objective advisor telling me to do so think about someone who's a trusted objective advisor to you, what would they tell you to do? What would derron tell you to do? What would that little angel on your shoulder tells you to do? We got about 50% of this benefit by just asking the question taking out ourselves outside of ourselves. So what would you tell a friend to do about this email in an objective situation, and you get the other 50% of the benefit by actually asking a trusted objective advisor. So call this person or for your millennial text this person. Next, how have I addressed All the ways this decision could fail. So think about the email, let's say your business partner happens to be in a bad mood when they read the email, and they misinterpreted and they get upset. And then whatever you want to see happen doesn't happen. How can you address that events? Well, perhaps read it, read the email, so your business partner receives it when they're in a bad mood, and then address all the ambiguities and uncertainties and lack of clarity in that email. And that will help you address all the sorts of the problems that would happen if the business partners about finally, what would cause you to change your mind about this decision. So what would cause you to reevaluate your choice? For example, with an email, you could say, hey, if I don't get an answer from my business partner, within a week, I will give this person a call. And now once you make this decision, you can just send the email and you can let it go knowing you have a revision point in a week, whereas otherwise it'd be kind of thinking about it all the way. In your mind, you know what? Why is your business partner not responding? Should you send another email should you call whereas right now if you make a decision in advance that if if then if you don't hear from that person in seven days in a week, you will give a call, you just let it go. And you got just go forward. So that those five questions are very effective for addressing a whole range of bad decisions that we tend to make on everyday level, minimizing risks. And this again, is for minimizing risks, not for maximizing rewards, for minimizing risks for anything, but you don't want to screw up.
J Darrin Gross 25:35
So I got a question. If you apply that five step process, how many emails do you write up that you'd like not to send?
Gleb Tispursky 25:47
Yes, that will definitely happen. You'll realize that, you know, maybe that's not the best, the best email for you to spend. So yes, I
J Darrin Gross 25:55
I was going to say, I know I have unnecessary thought of him in those, the one through five there, but I can tell you numerous times throughout the day, I'll start an email or a text or something. And then I realized, you know, what's the point of this kind of thing? It's not gonna, you know, is there going to be any benefit from this? Now, that's I appreciate you taking us through that. And especially I think just the asking these personally, as I've listened that, you know, what, what would a trusted advisor tell me to do? You know, because I think that's that right there is, is making me think outside of just the one to one. Now, if there's any kind of emotion involved in the, in the, you know, the reaction, if it's a reaction especially, I think there's, there's, there's power in waiting, you know, as opposed to reacting like that. So I appreciate you taking us through that. I got I got a question for you. You referred to, a couple of times through, you know, the information about how This is like a historical way we've been been wired, I want to say, No words.
Gleb Tispursky 27:08
Our brains are wired. Yeah. But
J Darrin Gross 27:11
is that is that? Do you find that that's at a cellular level? Or is that more of like, your grandparents did it that way your parents saw it. And it's just kind of a transfer of behavior based on the experience,
Gleb Tispursky 27:27
isn't it? It is at the cellular level, meaning biological meaning genetic in this case. So if you look at babies, you can see that these traits already exhibited in babies, you will can see that babies are things do things like loss aversion, they exhibit things like tribalism. So I talked a little bit about tribalism, so tribalism, one of them is status seeking one aspect of tribalism status seeking another aspect of tribalism is that it was very important for us in the Savannah environment, to be very strongly attracted to people who are like us meaningful like and trust the people who seem to be like us who have our values, who seem to like the things that we like, you know, like the same flavor is right. And to not like people who don't seem like us who seem different from us. So that was very important that environment because if we're going to be kicked out of our small little tribe who would die, and if our tribe fell apart, because we weren't supportive enough of our tribe, we would also die. So we're the descendants of those people who didn't die, because they were very tribal. And we they opposed attacking tribal members, hostile tribes, which wanted to claim their territory. So that's why I don't like other people who aren't like you. So you can see already those sorts of things, those examples. So again, babies were babies, if you show a baby, someone who likes the same thing that they do, and the baby will like that person more will be more attracted to that person. So these are not things that the babies haven't learned about these things yet. They are ingrained in us from when we're actually pretty, that our genetic innocence things. So they're instinctive and that is why they're very dangerous because they're instinctive, but not something we learned from my parents. They're just part of who we are. They're part of our genes, and they are ingrained behaviors. And that's the danger of following these ingrained behaviors that they're not a good fit for the modern world.
J Darrin Gross 29:18
No, it's good. Hey, I want to ask you a little bit about the you mentioned it, this fear of loss, or loss aversion. Can you speak to that and just kind of expand on that a little bit for us?
Gleb Tispursky 29:37
Sure. So here's the really interesting study that was done by a large bank, I won't name it looked at its best investors, people who had it's a, it's accounts for the best people which grew the highest and found that there were two categories of investors that were the best investors, one people who forgot about their accounts and two people who died
J Darrin Gross 30:01
Gleb Tispursky 30:02
J Darrin Gross 30:03
You got it, you got a chance or if you'd if you die, you could be one of the best investors.
Gleb Tispursky 30:07
There you go. Exactly. So because there are so many people who on average tend to, on average, investors tend to buy high and sell low. And that comes from various dangerous judgment errors. One of the biggest cognitive biases that causes this is called loss aversion. So loss aversion is our tendency to want to avoid losses, even at the expense of getting much higher gains. So this is it's a really fascinating phenomenon. If you there's been studies done showing that asking someone hey, here's a coin flip experiment. I'll give you $40 right now, and in exchange, not exchange so you have the $40. Now, will you give me that $40 for a flip of a coin where if you get heads, you get hundred dollars or if it's tails, you get zero. Now, if you get that experiment to people, you'll see that about 80 to 90% of the people choose to keep the $40. They don't want to go to the coin flip. But the coin flip, the equivalent value of the coin flip is $50. It's 50% of 100. So think about what happens with a coin flip. If you do a coin, flip 100 times 1000 times do it 100,000 times 100,000 times, that's a difference of 40 million versus a 4 million versus 5 million. That's the difference between the $40 equivalent and the $50 equivalent, but we are very much so if you if I say that when I say that to people, they say well, you didn't tell me about the repeating scenario. You told me just you know this one time scenario. If I thought about it differently, if you told me it was a repeating scenario, well, our gut reaction tends to see anything that we do as a one time thing. It doesn't see the broader context of the story. veterans that we tend to make, it doesn't go toward that high gain the 50% chance of $50 of the 50% chance of $100 instead of the $40, I can keep right now. So this is one of the biggest problems that we tend to go for, we tend to want the bird in the hand instead of the two in the bush, even when we have a pretty strongly guaranteed chance of getting the two in the bush. And because in the savanna environment, think about it in the savanna environment. We were in a very precarious environment where it just we didn't have banks, it didn't make sense for us to gather resources. It's not like we know we, if you kill the mammoth, you can put all the food in the fridge, right? You can't store up your resources. So in the savanna environment, it made a lot of sense for us to go for the immediate short term gains and to ignore the larger potential gains from investing these resources and to avoid losses because in the picture So in environment, if we, for if we risked our resources, the $40 for the pretty sizable chance of winning $100, then maybe there would be a drought or something like that, and we would die. So that sort of precarious environment, it makes sense to go to avoid losses to make sure to preserve as many short term resources as possible. In the modern environment, it really doesn't. We have banks were pretty well protected from immediate short term losses. And it's so if you make a short term loss of $40, not a big deal, you will still win out over all over a million flips, coin flips and give the $50 million equivalent. However, that's not what our gut tells us. So we tend to when we are faced with the short term loss when we see stocks falling, we tend to immediately want to sell them, even though it might not be the right time to sell. And when we see stocks as going high. We want we experienced FOMO fear of missing out, and we tend to want to buy them, even though it may not be the best time to buy even though they might have peaked. So these are times when we are falling into that loss aversion, we want to avoid the loss of not getting into a good thing. And we want to avoid the loss of
more pain from stocks going down. And we make bad decisions. And of course, this applies to not only stocks, this applies to commercial real estate deals, this applies to all sorts of deals, this applies to our general way of thinking and being in the world. So you need to be very careful and know that, hey, this is a tendency in which we human beings fall into a need to be constantly aware of this and scanning your environment for this tendency, just like you're scared of scanning your environment for the and making sure to not eat a dozen donuts because you know, it's very easy for us to eat a dozen donuts if we're not full. If we're not paying attention to it. It's very easy for us to you know, just come home and play down on the couch and watch Netflix, instead of going out to the gym, which, you know, ideally, you want to do about 30 minutes of exercise a day. But in the savanna environment, you want to preserve all the resources, all the calories that you could and not do exercises. So we're not we are wired to serve at home and watch Netflix all day, you know, the equivalent of sitting in the cab and by the campfire and you know, doing that all day. So this is a problem for us. And we want to make sure to be watching out for all of these sorts of problems, cognitive biases, loss aversion, you know, and all of these status seeking and so on. And so that's loss aversion is one of the biggest ones that investors tend to fall into that causes them a lot of pain like this big bank discovered
J Darrin Gross 35:46
No, it's it's interesting you know, when you think about it based on the the two best investors, the those who forgot about the account or those that died. It sounds like sometimes not making a decision is one The best decisions that you can make.
Gleb Tispursky 36:03
And that's why I was giving the example of when stocks are going up, that may not be the best time to buy these stocks. And when stocks are going down, that may not be the best time to sell these stocks. And that's one of the just one of many reasons why people who do that are often the ones who lose.
J Darrin Gross 36:21
Well, I think it also, especially in real estate, I know I bought at the high and at the low end. But over time, if you if you have enough time, it all works out. It's a matter of you. I think if if maybe the first decision would be can I afford to lose this money? Or can I afford to not worry about it? or How much time do I have? That kind of thing? Because if you start from that standpoint and understand you may need a longer horizon to get to your goal, but you will make your goal maybe just not on such a short horizon and I think right Now especially where we're at, with the cycle of the market. When, when people look at and realize just how low the market was, you know, and the crash does and how far up it's come. There's this natural tendency to think and I think it kind of plays on what we've been talking about here. Is this kind of the fear of the next crash? And then in the news, recently the Coronavirus and you know, other things that suggest you know, there's there's like the antenna or up looking for looking for the next shoe to drop as opposed to, like you're saying the long run is things you know, you flip the coin enough times, or if you buy and stay in enough deals. It sounds like to me that that you know, you're probably gonna be alright, it's more a matter that if you're trying to time it, kind of thing that you might not. He might know when. So,
Gleb Tispursky 37:57
Yes, so you want to make sure that's why valid Investing is a good pretty good bet. You want to make sure if the deal makes sense over time, rather than trying to time the market and time trying to time the market, whether it's the real estate market, or the stock market is usually not going to win out, especially because you're competing against others who are trying to time the market. And when you're competing against the big firms that are trying to time the market, they're often going to be better at timing the market than you are. And so you can actually get the best chance for smaller investors, according to research on this topic is to try to do value investing, whether in the real estate or elsewhere, so focusing on the fundamentals, rather than trying to time the market.
J Darrin Gross 38:42
Got it? Gleb, if we could, I'd like to shift gears here for a second. As I mentioned to you before, we started recording by dam and insurance broker. And as such, we we try and work with our clients to manage risk and There's a couple of different strategies we consider when when trying to manage risk. The first is we ask, can we avoid the risk? If that's not an option, we look and ask, can we minimize the risk? And that's not an option, then we look in and ask, can we transfer the risk? And that's what an insurance policy is, is a risk risk Transfer Tool? and, as such, I have been asking my guests, if they can identify what they consider to be the biggest risk. And just for clarity, I'm not necessarily looking for an insurance related answer. You know, I think some people they think because I have insurance. So that's, that's what I'm looking for. But it's not because I realized that risk is, you know, far reaching. In fact, everything we've been talking about here is kind of managing risk from the standpoint of decision making. But if you're willing, I'd like to ask you Gleb Tispersky. What is the BIGGEST RISK?
Gleb Tispursky 0:06
So what is the biggest risk for me? You're asking?
J Darrin Gross 0:09
Yeah, you are however you you know, you can identify you personally. Or if you see investors or how you see people making decisions or however you want to, however you want to frame the question.
Gleb Tispursky 0:21
So for me, and for me, and for many other people who are like me, the biggest risk, I would say is coal is a cognitive bias called the optimism bias. So I tend to be very optimistically biased. What does that mean? It's one of the cognitive biases where people tend to see the future as always bright. As always great. As you know, the grass is greener on the other side of the hill, everything is going to be wonderful, tend to be risk blind and tend to be have exaggerated expectations. So I tend to systematically underestimate the risks for my future for myself, and this is a huge problem. I've run into many, many mistakes and many problems.
That I wouldn't have to run into if I was not risk intuitively risk blind if I was not just focusing on the opportunities instead of the frets. So I've had to really work on myself and train myself and how to get some outside advisors and help to who are pessimistically oriented to run my ideas by because I just don't see the inherent flaws in them, which are many, you know, the kind of first was 28 years before breakfast, and thinks they're all brilliant. Now, to my bitter experience, I've learned they're not, but this is something I know I have to deal with. And this is something that I've learned to mitigate by both calibrating myself better and knowing that I tend to be way too optimistic, and getting outside help from people who are pessimistic who I trust, who I can run ideas by, and who can tell me that hey, you know, these are 20 have baked potatoes and you know, 17 of them don't make sense but maybe these three you could work on and you know, finish baking them into fully baked potatoes.
J Darrin Gross 1:55
That's great. I love you explaning what you were talking about what's just the five questions there is kind of bouncing your ideas off of somebody else there. That's a lot of power now. So, all right, so Gleb before we wrap up, where can listeners go if they would like to learn more or connect with you?
Gleb Tispursky 2:17
Well, my books are available in bookstores everywhere. They're published by great traditional publishers and never go there got this published by courier press, the blind spots between us as published by new Harbinger. The truth seekers handbook is published by intentional insights. So they're available in physical bookstores everywhere. You can check them out in Barnes and Noble indie bookstores, university bookstores and whatnot. And of course, online on Amazon, Barnes and Noble and elsewhere. My information is going to be on disaster avoidance experts.com. And again, disaster avoidance experts.com. There's going to be blogs, podcasts, video casts, guides, decision maids, manuals, services and consulting coaching and speaking and training and so on. You want to especially Make sure to go to disaster avoidance experts.com forward slash subscribe. There's a free eight video based course on making good decisions. So that includes as the first step of the course on assessment on the 30 most dangerous judgment errors in professional decision making, whether business investing and so on. Again, it's disaster avoidance experts.com forward slash subscribe, and I'm very active on LinkedIn. So if you have any questions about anything you've heard, connect with me there and ask me any questions. Doctor gloves support ski, GLEB TSIPERSKY.
J Darrin Gross 3:35
Got it. For our listeners, I'll have that listed in the show notes. So if you're driving and unable to right, find that there. Gleb, I want to say thanks again for taking the time to talk. I've enjoyed it, and learned a lot. And I hope we can do it again soon.
Gleb Tispursky 3:54
It was a pleasure. Thank you so much for inviting me.
J Darrin Gross 3:58
All right, for our listeners. If you like this episode Don't forget to like, share and subscribe. Remember, the more you know, the more you grow. That's all we've got this week. Until next time, thanks for listening to commercial real estate pro networks. CREPN Radio