Sound financial decisions, spending less than you make, investing for the long-term, and avoiding big investment mistakes. These ideas are pretty standard financial advice. Disobey them at your peril.
But my office is in a WeWork. They haven’t done any of the above things.
If you’ve followed the news, WeWork is maybe the most disastrous almost-IPO ever. Last year, WeWork almost hit the investment market at a valuation of 47 Billion. Some firms were projecting 60 Billion+. Those firms were ready to sell WeWork to their clients at those valuations (this blows my mind). Well, WeWork is now worth a very small fraction of those numbers. The departing CEO somehow came away with an enormous amount of wealth in the process of getting fired.
So, WeWork was a thoroughly terrible investment-infamously terrible.
Oddly enough, and this might surprise you, it is an amazing office.
The product and service WeWork offers is nearly perfect. For those not familiar with WeWork, it’s a Coworking office space. You can become a member for a pretty low monthly price and have access to a “hot desk”-an open office area with tables and chairs. The vast majority of the office space in my WeWork in The Woodlands, though, is private offices leased on a longer-term basis. Exxon Mobil is the largest tenant in our location. You would think I planned that. Opening a financial planning firm specifically for professionals/retirees from massive Oil & Gas companies in the same building as Exxon sounds like a brilliant investment. I didn’t even know Exxon was there when I picked it.
Why is WeWork so amazing?
My office is about 100 square feet. It’s great, and my wife picked out two navy chairs with white accents, a rug, and we even have a little glass bowl with aspen pines coming out of it! The height of luxury!
Here’s why the concept is so amazing. On a per square foot basis, I guess I’m paying a lot. But, the smallest option for traditional office space in Hughes Landing is a lot more expensive. My office isn’t huge. But, I have access to everything I could need in addition to my office. I hold almost every client meeting in a conference room; there’s about ten of them, and they’re all very nice. The entire place is incredible. We’re on the 11th floor in Hughes Landing. When you walk in, you see a wall of windows that directly faces one of the few bald eagle nests in Texas. It’s awesome. You receive a warm greeting by one of the hosts in the lobby. Then you can grab a fruit-infused water, root beer or cold-brew coffee (on tap), or make yourself anything from the espresso machine. Oh, and I don’t have to do any of that.
This is a big deal. My office requires virtually no work or effort from me in any way. I don’t have to worry about utilities, cleaning, printers, anything.
My office also gives me access to every other WeWork location in the world. When I need to host a meeting down in Houston, they have downtown and Galleria locations. Over Christmas, I worked a couple of days in a WeWork in Kansas City and Dallas as we visited family. While there’s still work to do in late July, most of it can be done remote. So, if we want to spend two weeks in Boulder, San Diego, or visit family in Seattle, I can work there.
So yes, my per square foot price is high. But, it’s noticeably less than the smallest traditional office space I could find in my same location. And if you can’t tell, I am thoroughly convinced that I’m getting way more than anything a traditional office space investment could offer me.
That’s the concept. I have everything I need to serve the people I serve. And WeWork has removed almost every pain or distraction that comes with office space — hiring a receptionist, setting up the printer, utilities, cleaning the bathrooms, providing water, coffee, root beer, etc. All of those things have to get done. But, none of those things help simplify your investments, lower your taxes, or grow your wealth. So, I shouldn’t spend my time doing them.
The Investment Gap
Now let’s talk investments.
The need for this type of service is exploding. Working virtually is taking off like a rocket-ship. Belay, a company based near Atlanta, recently won an award for having the best employee culture–their employees all work virtually!
But the market is way bigger than that. WeWork started as a solution for entrepreneurs and virtual workers. Now, it’s positioning themselves as the best solution for large and mid-size companies. And if you read my summary above, it makes sense why this concept is the best solution for a lot of companies.
So, we have a huge opportunity in every major city in the world. We have a company that is executing something that I, and every other WeWork member I’ve talked to, would claim is extraordinary.
Where’s the disconnect? Why was the valuation near $50 Billion last year, and now it’s nowhere near that number?
There can be a gap-sometimes a large gap-between companies that offer a needed service and companies that provide exceptional value to shareholders.
Examples throughout History
RFID technology. When I was about 14, my brother and I joined my parents for a work trip they had in Seattle. During that trip, I did something that, for years, was the coolest experience of my life. We toured a house that Microsoft had built as their example of a “house of the future” Keep in mind this is somewhere around 20 years ago-before smartphones. This is also before Pinterest and Instagram brought accountability to home design and ended the offensive trend of designing homes like Cheesecake Factories. Point being, it was easier to be impressed back then!
It was an actual house in a Seattle suburb. Inside the house, everything looked normal and welcoming, but it was quickly anything but normal. The foyer and front living room could pick up your tone of voice and play music to soothe you based on your mood. The lights would adjust for your mood as well. I think they had something similar to a Nest doorbell.
From there, you entered the kitchen, and let me tell you about this George Jetson kitchen! The countertops and the fridge could turn into a TV screen at all times. If you placed a grocery item on the counter, a screen popped up right by your food and showed you all of the potential recipes you could make with that particular food. It also showed expiration dates and gave you the ability to add it to your grocery order if it was running low. The fridge had the same ability. A screen would appear on the fridge door showing you all of your contents (who needs the arm strain of opening the door anyway?) with lists of all the recipes you could make with those items.
The dining room and bedrooms were similar. Being able to turn the wall into a digital screen at any point was mesmerizing. Also, have you seen that workout mirror that just came out recently? The bathroom mirrors were similar. It kept a record of your entire wardrobe. You could stand in front of the mirror and see what you would like with different clothing combinations before actually dressing yourself.
A lot of what I’m describing may sound commonplace today. But for a 14-year-old back then, it was life-changing and a license to think I was better than all the other kids at my middle school. I had seen the future, and it was great!
But let’s get to the point. I was convinced a $100 investment in RFID technology was about to make me an investment wizard. Sure, Warren Buffet was smart, but had he been to the Microsoft future house? So, I searched to see who the largest player in that space was. I can’t even remember the company, but I followed them for years. Guess what? They never really took off. Meanwhile, McDonald’s continued to soar. Picking a particular winner in an emerging technology is far more difficult than most realize.
Airlines. Airlines completely baffle me. Why don’t they make money? Why don’t tickets get cheaper days before the flight? Why can the whole experience be so difficult, yet there isn’t a way to just spend a little bit more and make it way better? I guess that’s the idea of flying first class. But even being 6’3″ and flying coach isn’t the end of the world. Driving in traffic, parking, taking a shuttle, and having zero idea how long the security line will be? I hate that.
This is a similar concept to WeWork but even more exaggerated. Flying changed the world. If you’re looking at a timeline with 10-20 years on it, the innovation of coworking spaces may not even make the timeline. But flying? You could make a 5,000-year human history timeline, and the innovation of airplanes has a serious chance of making it. It’s a big deal.
Yet investing in airlines has been a turbulent experience* for even the greatest minds. Warren Buffet joked in 2008 that someone could have done future investing generations a favor by shooting down Orville Wright’s plane at Kitty Hawk.
Flight. A genuinely fantastic innovation. Still, incredibly challenging to predict who will be the winners and losers inside of the industry. This leads me to my next one.
Cryptocurrency. If you’ve read about Bitcoin or any cryptocurrency, chances are you’ve heard something like the following, “I don’t know if Bitcoin is going to be a great investment, but the Blockchain technology behind it certainly is.”
I could end this post right there. That’s the point. There is certainly a chance that cryptocurrency or Blockchain revolutionizes banking and contracts in the future. Let’s say that it does. Even if that is the case, we don’t know what will happen with investments in specific cryptocurrencies. Bitcoin could win out, and its current price could be viewed as a bargain a decade later. Or it might not.
This leads us back to WeWork. In some ways, its value ballooned out of reality, and that set up the disappointment in 2019. Some may argue Tesla is in a similar boat. Tesla is building excellent cars. Are they the most valuable carmaker in the world? Their current market cap is. Are they overvalued? Maybe. Or, the revolutionary design behind the wiring system in the Model Y could push the stock dramatically higher. We don’t know. That’s the difficulty. When something is innovative, its stock often comes with a premium price attached. Remember when everyone was knocking Amazon decades ago for never making a real profit? Everyone who did that would give anything to go back in time and purchase Amazon stock at its early 21st century price. Remember, it’s normal for 10% of the S&P 500 to fuel the majority of returns in any given year. And even in great years, a portion of the companies in the index will have bad years. That’s why it’s so tempting to pay active managers huge fees when they promise to buy the good and sell the bad. History shows us that it is virtually impossible to do.
Do you want one last incredible reminder? Domino’s. Yes, the pizza company. Netflix made a comeback and ended up winning the decade as the best performing stock, but for the first eight years (2010-end of 2017), Domino’s was a better stock than the tech giants. Netflix, Apple, Amazon, Google…all underperformed Domino’s! You might be thinking that their pizza was terrible back in 2010. Guess what? The market had already priced that in. They made some changes and took off like a rocket. Don’t try to guess. And remember, if you own all the stocks, you won’t miss out on the next Domino’s or Netflix.
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*I use Grammarly when I write (a simple app that fixes grammar errors and gives suggestions to enhance your writing). It popped up a warning by “turbulent,” saying I could come up with a better adjective. Apparently, Grammarly doesn’t appreciate my puns. Come on. This is excellent content!