We never want to think about it but Collins reminds us that just about every great company eventually has a severe decline. According to Collins' research there are five stages of decline: 1. Hubris Born of Success; 2. Undisciplined Pursuit of More; 3. Denial of Risk and Peril; 4. Grasping for Salvation; 5. Capitulation to Irrelevance or Death.
Companies can take varying times to work their way through these stages and many turn around during this period of decline.
The Undisciplined Pursuit of More is particularly relevant for real estate investors. Let's be honest, doing a deal is really fun and it is easy to imagine how much money we are going to make by accumulating more properties. When considering your next purchase though remember some of what Collins says:
Big does not equal great. Do not become addicted to scale. Don't try to grow at an unsustainable rate. Leave some growth on the table. Ask yourself these three very important questions:
1) What is the upside if events turn out well?
2) What's the downside if events go very badly?
3) Can you live with the downside?
If you weigh these questions carefully, make your decisions based on empirical evidence, and keep some cash to get you through the lean times you'll make wise acquisitions.
If you have any book suggestions that would be helpful for real estate investors we would love to hear your advice.