Transcript
So, what does data tell us about investment opportunities in general that, you know, experience might not, you know, your standard research or traditional research might not? Well, the first thing is it's a new way of looking at things. In the world of chat GPT, in the world of $29 subscriptions, I think it's criminal not to do this kind of research. When I look at big data, it takes me away from the concept of and I'm I'm making, you know, this up. It takes me away from the concept of Provo, Utah is a is a good city for real estate investment and takes me into this rarefied realm of Provo, Utah is in the top 5% of cities in the US for real estate investment, but it doesn't happen to be in the top 1%.
The top 1% is Idaho Falls or Northwest Arkansas. You realize that you've just completely changed the rules of the game when you do that. And traditional research will get you so far as Provo is a good place to invest in. But it will not get you to the point of what is the best city in America to invest in because traditional research doesn't function like that. To do that, you need big data.
Essentially, you need data on all of the cities in the United States and you need to understand how these cities tick. Why do real estate prices go up? What are all the different factors that drive them up? Traditional data just simply looks at a small set of variables because I think most people cannot deal with large amounts of data. And that's the advantage that I have.
I live in a swimming pool of data and I'm comfortable in that swimming pool where most people, once they get beyond a small Excel spreadsheet, you know, all of a sudden it's like, "Hey, there's too much. I'm going to back off." And that's the advantage that quants have. You know, um I've only invented one saying in my life, but but I think it's a good one. And and the saying is that the the Bible got it wrong by one letter. The Bible got it wrong by one letter.
It's not the meek that shall inherit the earth. It's the geek. It's the geek that shall inherit the earth. Richest man in the world? Geek.
Second richest? Geek. Third richest? Geek. You see this pattern, right?
People like us that are comfortable swimming in oceans of data are able to make intuitive jumps that others can't. And I think the world eventually will change to more geeks like us making those intuitive jumps, and that's where humanity is going. How do I figure out, you know, what areas are going to boom, right? Where do I get the information? It's an elaborate process.
I'm going to break it down for you. First, I need to gather the data. Where do I get the data? Well, most of the data is actually free. So, the Bureau of Labor Statistic gives me all the demographic data, you know, job growth, population growth, you know, those sorts of things are very important because a city that's growing in population and growing in jobs and growing in income, all of those things need to happen.
Sometimes there's job growth in a city, but there isn't income growth, right? The jobs are there, but they're low-paying jobs, right? So, one Google engineer job is the equivalent of 11 Walmart jobs. So, there's an understanding of not just qua- quantity of jobs, but quality of jobs. And a lot of that data is public.
So, I I I can't just look at how many jobs are growing or how many people are coming into a particular city. I have to look at how the incomes are rising, right? I also have to look at home prices rising. I'm a multi-family guy. I don't build single-family homes.
I build very large apartment complexes and I buy very large apartment complexes. So, it's very important for me to look at supply data. And supply data is available usually not it's not, you know, available for free, but it's kind of sort of free. You can subscribe to a lot of different websites, to all the different brokers, and they publish these papers, and I suck data out of that. I have an army in the Philippines and their job is to gather all of this data for me.
And then I do something known as spidering. So, it's a little gray, but spidering is the process of taking a website like Zillow, which has incredible amounts of data, right? So, there's 1,016 cities in the United States, 323 metro areas. As it happens, Zillow has completely free information on all of them. So, we go grab that information from Zillow, and it shows increases in home prices.
It shows increases in rents. And we take that data and we put it into a statistical analysis software. It's essentially a software that you can put stuff into and ask it questions, and it gives you intuitive answers, right? And in the AI age, that software is even getting better. Previously, it was a a chore to get it to give you answers, but now it it's it's getting better.
Once again, all of the cities in the US, demographic data, then data about supply. I don't want to go into a city where 20 new builders are simultaneously building apartment complexes. So, income growth, job growth, home price growth, and population growth are good, right? Too much incoming supply is bad. So, my software gives weightages to different things, and then once it's in there, whatever comes out, I start looking at those cities.
Now, and sometimes I find Well, I have to I have to clean my data to get rid of certain cities, right? For example, shale cities. So, the Permian Basin in Texas has shale cities, and so do So does North Dakota. So, there's a number of cities in the US that often show ridiculous data, ridiculous growth data. Well, that's because the price of oil is $90.
All of a sudden, these cities show ridiculous loss of jobs when the price of oil falls below 70. So, I have to clean my data cuz those are dangerous markets. So, there's cities in the United States um that are extremely highly occupied with oil workers, right? So, like 7 or 8 70 or 80% of the people that are in these cities are somehow connected with the business of pulling oil out of the ground. The United States is the world's largest energy producer.
We're the world's largest energy exporter. By the way, we're the size the size of two Saudi Arabia's. Um and I and the reason we were able to do that is we are the only country in the world that uses a technology called shale, which basically or also fracking, right? So what you're doing is you're basically drilling this way and then you're drilling sideways. Why is that important for real estate guys like me?
Well, we don't like shale cities because what happens is they fill up and then they empty out in a matter of days. As an apartment owner, I want to go into a city that's very stable, very steady Eddie. So my my tenants can live there for a long time. So as a as a quant, if I am not tracking these cities and if I don't understand where shale cities are, my data becomes highly polluted. So one of the things that we do is we make a list of every city in the United States that does shale or fracking and we remove them from our data set cuz we will make huge mistakes and lose people's money if we go and invest in these places.
If oil crashes all of a sudden, you know, I could lose all of my money. So I got to clean out those sorts of markets, right? I also have to clean the data for things like student housing. All of a sudden I might see an area that's really great like Provo, Utah. Well, it's a school town, right?
UVU, BYU. Well, those students have no incomes. So I've got to if I don't adjust for that, it looks like Provo is a really poor place. So I have to make some adjustments in my software. So when I make adjustments and I clean the data out, then I start getting a picture and that picture is is beautiful because that picture isn't just about cities.
It's about areas. It's about regions. It's about clusters of cities. It's about corridors between cities. And that picture starts to emerge because I look at the data and I I at the data from last month and the month before.
I normally pay no attention to data for a particular month because stuff goes up, stuff goes down. Amazon opened a warehouse and a thousand people got employed. That's just noise, right? What I'm interested in is monthly patterns. What parts of the United States are seeing increases and why are they seeing increases?
Some of the best places in America to invest in right now are Northwest Arkansas. And I mean and every time I go to a conference, I was at a conference presenting yesterday, when I say Northwest Arkansas, I always get what? Northwest Arkansas? Arkansas? And the answer is yes, but but let's talk about the reasons for what is happening in Northwest Arkansas.
So it's a region, 500,000 people, four major cities. So so you've got interesting cities like Fayetteville and Bentonville and Rogers. And what's happening there firstly is Walmart is growing. The headquarters of Walmart are in Bentonville and Walmart has a mandate and that mandate is if you were a mid middle-level manager and you were somewhere in the United States, we're now going to pay you a lot more if you move to Rogers. And if you don't move, well, you may start looking for another job, right?
So it's that kind of a mandate. So now you have all these high-income people that are moving with families into this area, tens of thousands of them. Well, that's affecting things. But at the same time, you have this family, the richest family in America, the Waltons, and they live in that area. And the Waltons over time have become more and more philanthropic and most of their philanthropy is focused on making these set of cities just amazing places to live.
They're pouring billions of dollars into bike trails, into beautiful parks, into just making these cities amazing. So when I come up with a place like Northwest Arkansas, you know, the first reaction is what's going on here? So I start doing more research on that. I learn a little bit more and then as you can imagine, I get on a plane. So I go to Rogers and I drive around Bentonville And I'm astonished because it this looks like Provo when I was going to Provo in 2016.
It has the same feel. It has the same look. The same amount of venture capital is going on. New companies are opening. And it gives me an insight that 5 years from now or 10 years from now, Northwest Arkansas is going to look like Provo today.
Provo is a massive success story. Just for those that don't know, Provo is about 30 miles south of Salt Lake City and it is part of what is known as Silicon Slopes. So, a large number of technology companies open up in that corridor all the way from SLC to Provo. An an incredible explosion of growth and and income has happened over the last 7 or 8 years. That process is now being repeated across the United States in other parts of the US.
So, there's always a story, a human story, that's attached to the quant numbers. But, I don't go into these metros until I've seen repeatedly month after month this metro or the small cities inside this metro are continuously at the top of the 1,000 city list. And that's very exciting for me when I see that because most people will not hear this story for the next 3 to 4 years. And I'll be ready for my exit when they hear.