Use_Data_To_Make_Investment_Arb_Decisions
00:00:00.000 | Hello everybody, it's Sam from Financial Samurai.
00:00:02.640 | And in this episode, I want to talk about using data to conduct investment arbitrage
00:00:08.760 | to make money.
00:00:10.440 | Back in June 2019, I came up with this thing called the FS 20 indicator.
00:00:17.560 | It was a property leading indicator that gives buyers the confidence to buy real estate.
00:00:23.840 | Now what is the FS 20 property indicator?
00:00:26.160 | Well FS stands for Financial Samurai, of course, and 20 stands for 20%.
00:00:31.120 | So the FS 20 property indicator goes off.
00:00:35.120 | It signals a buy when a home's final sales price is at least 20% higher than the online
00:00:42.160 | estimate in the neighborhood you want to buy.
00:00:44.880 | So for example, if Redfin or Zillow says this house is worth a million dollars, right, that's
00:00:50.840 | their Zestimate or Redfin estimate, and it goes pending, and then three weeks later,
00:00:55.960 | it sells for 1.2 million or higher, as a potential buyer on the sidelines, you look at that result
00:01:02.840 | and think, "Hmm, that is some interesting stuff," because the online estimates were
00:01:07.600 | so off.
00:01:09.240 | And when you have a final sales price that is 20% or greater than the estimate, that
00:01:13.880 | is signifying that the market is moving ahead.
00:01:17.200 | It's moving up.
00:01:18.640 | And therefore, if you can find comps in that neighborhood, where you can buy below that
00:01:23.780 | final sales price, or actually at the Zestimate or Redfin estimate, which is much lower, right,
00:01:30.400 | then you're probably good to go and you're probably going to get a good deal.
00:01:34.840 | Now of course, not one sale does a trend make.
00:01:38.560 | So you as the potential buyer need to continuously, you know, tag all the homes that you like.
00:01:43.840 | Hopefully you go visit them all as well.
00:01:46.560 | And you keep a checklist to say, "Okay, what was the Zestimate or the Redfin estimate?
00:01:51.640 | What did it finally sell for?"
00:01:53.360 | And you plot some trends.
00:01:55.240 | And so this is what I came up with in 2019.
00:01:57.040 | You can go check out the post yourself and it's linked in the podcast FS20 Property Indicator.
00:02:02.160 | And what has happened since then is that things have gone up, right?
00:02:06.980 | It's been pretty spot on if you were following this trend, because real estate has done very
00:02:11.680 | well since 2019, especially in 2020 and 2021.
00:02:15.640 | Okay, so it's easy to say, "Yeah, things have done well."
00:02:19.080 | But again, you got to reverse back time, go back to 2019 and just think about how we were
00:02:24.680 | feeling.
00:02:25.680 | You know, 2019, things were pretty good, but things were feeling pretty frothy as well.
00:02:31.440 | So don't do revisionist history and think, "Oh, well, I knew 2019 was the time to buy
00:02:36.880 | because look at prices now."
00:02:38.560 | Instead, got to look at the data.
00:02:41.700 | And at least here on Financial Samurai, all these posts are published with the dates and
00:02:45.560 | you can see the comments.
00:02:46.920 | So there's really no going back.
00:02:47.960 | I can't hide from anything, even if I wanted to.
00:02:51.400 | So use these online estimates in your favor to try to get better deals.
00:02:58.300 | There's always a deal out there, especially in real estate.
00:03:00.400 | And there's always a deal out there, especially in the stock market too.
00:03:03.320 | The markets are inefficient and things are changing all the time, which is why there's
00:03:07.120 | always opportunity.
00:03:08.120 | Now, just speaking of Redfin and Zillow, just heads up, as of October 21st, I noticed over
00:03:13.520 | the past 30 days that there's been a huge revaluation in their online estimates of real
00:03:19.880 | estate.
00:03:20.880 | And we're talking, at least here in San Francisco, like a 10% plus increase.
00:03:24.640 | So they suddenly changed their estimates again so they don't look so far off.
00:03:29.480 | And I talked about this in the past regarding how you can use their poor estimates in your
00:03:35.400 | favor.
00:03:36.520 | So with regards to using data, data is your friend if you can use it appropriately.
00:03:43.000 | And what I realized very recently is that there's other data that stock investors can
00:03:49.100 | use and real estate investors to make more informed investments.
00:03:54.440 | And that is the Yelp quarterly economic average report.
00:03:58.480 | They come out with these reports every three months, and they talk about what they're seeing
00:04:02.400 | in terms of small businesses, what's opening, what's closing, how does this year compare
00:04:07.720 | to this time last year, specific segments, and so forth.
00:04:12.240 | Now recently my wife and I finally went out on a social gathering to see other preschool
00:04:17.360 | parents.
00:04:18.360 | It was like the first time in probably 18 months together seeing other people.
00:04:22.120 | We had some drinks outside, and it was really interesting.
00:04:25.440 | And while at this gathering, I realized I was a little bit self-conscious because I
00:04:29.400 | hadn't gotten a professional haircut in 18 months.
00:04:32.120 | I've just been using my clippers, so I wore a hat.
00:04:35.040 | And then I realized, wow, everybody's dressed so nicely.
00:04:38.720 | Whereas I've been dressing in track pants and t-shirt and just like a jacket for actually
00:04:44.720 | forever.
00:04:45.720 | Well, since 2012, since I left finance.
00:04:47.720 | And so that also made me think, "Hmm, I should probably get some new clothes."
00:04:51.840 | And so I did decide to get new clothes, a couple of shirts and a sweater to upgrade
00:04:57.140 | my 10-year-old ratty t-shirts.
00:04:59.760 | And they felt a little bit snug.
00:05:01.280 | And I thought, "Hmm, I better get back in shape or at least stay in shape so I can keep
00:05:06.360 | these clothes for a very long time."
00:05:08.400 | You know, what a shame to buy your favorite jeans and then you put on 20 pounds and you
00:05:13.560 | can't fit in them comfortably anymore.
00:05:15.920 | Anyway, so all of this led to my thesis that, "Hey, maybe buying health and fitness stocks
00:05:21.400 | is a good idea."
00:05:22.400 | And you can check out the post for more details on why I like this one fitness company called
00:05:27.640 | Lifetime Fitness, Lifetime Group LTH.
00:05:30.880 | It's not investment advice, but just check out my rationale because I used to think about
00:05:34.120 | this and write these kinds of reports while I worked in finance for 13 years.
00:05:38.960 | So going back to using data to make investment arbitrage decisions or better investment decisions,
00:05:45.040 | while I took a look at the Q3 2021 Economic Average Report, and in the report, it said,
00:05:50.320 | "After a year of home and outdoor workouts growing in popularity, gym and fitness classes
00:05:56.160 | are back on the rise."
00:05:58.040 | In Q3 2021, Pilates is up 54%, pole dancing classes up 56%, aerial fitness, that sounds
00:06:06.320 | really fun, up 74%, yoga 41%, bar classes 42%, saunas, saunas, right?
00:06:12.480 | That's a small room, up 55%.
00:06:15.940 | And they have all surpassed Q3 2020 consumer interest levels.
00:06:21.740 | So that is bullish data.
00:06:23.480 | So how do you turn that bullish data into action?
00:06:26.440 | Well, I was looking at Lifetime Fitness, and they just went public on October 7, 2021.
00:06:32.720 | And so when you go public, there's this thing called the blackout period or the quiet period.
00:06:37.520 | For 40 days after listing, management cannot say a word.
00:06:42.680 | They can't say things are going great, things are going poorly, they can't tell their friends,
00:06:47.040 | they got to be quiet to follow SEC guidelines.
00:06:49.660 | This is so there's no unfair advantage for anybody to trade the stock.
00:06:55.240 | So here's the thing, folks, the Yelp 3Q 2021 economic average report talks about stuff
00:07:01.760 | that ended on September 30, the calendar year, that's the end of the third quarter.
00:07:06.560 | Now given LTH went public on October 7, management cannot say anything for 40 days after.
00:07:13.600 | So in other words, they can't say anything until mid November 2021.
00:07:17.860 | So as an investor, you've got to think about the future, you've got to always try to connect
00:07:22.800 | the dots and predict the future.
00:07:25.960 | Now based on the Yelp 3Q 2021 report, things are booming in the fitness and gym space.
00:07:33.480 | And LTH is in the fitness and gym space.
00:07:36.360 | It has more like a luxury resort fitness and gyms with 150,000 square feet and indoor space
00:07:41.680 | and stuff like that.
00:07:43.180 | But it is my opinion that management has seen those strong third quarter results, but it
00:07:48.960 | just can't say anything because it's in the quiet period.
00:07:51.980 | It would violate SEC law.
00:07:54.360 | Therefore, management of LTH and perhaps other fitness companies that operate gyms are just
00:08:01.160 | biting their lips, bursting to say something positive, but they cannot because they don't
00:08:06.320 | want to go to jail or get fined.
00:08:08.120 | But as retail investors, we can do what we want based on our analytical minds and how
00:08:14.280 | we connect those dots.
00:08:15.840 | So for me, I'm going to be buying some health and fitness stocks.
00:08:18.560 | I think it's one of the last reopening trades.
00:08:21.040 | You've seen airline stocks come back from 2020 lows, hotel stocks.
00:08:26.040 | Some of them are doing really well.
00:08:27.040 | Like Hilton is doing really well.
00:08:28.560 | Airbnb is up like 8x since Silverlake bailed them out in mid 2020.
00:08:34.940 | And then a lot of the hospitality, private real estate deals that I follow, that I invest
00:08:38.840 | in are doing well.
00:08:40.440 | The demand is there, right?
00:08:41.720 | It's going to take years to play out to see how well they do, especially for those ones
00:08:45.060 | that you invest in in last year or this year 2021.
00:08:49.560 | But the demand is there.
00:08:51.140 | So you've got to think what's next.
00:08:53.200 | For me, you know, the S&P 500 is at $4,500.
00:08:56.560 | I think it's probably going to continue going higher because the earnings trend is your
00:09:00.240 | friend.
00:09:01.240 | But instead of chasing momentum all the time or just buying at all-time highs, which is
00:09:06.400 | generally played out and done well, you also want to look at some contrarian names that
00:09:11.320 | have lagged and that could do well once the hype starts.
00:09:15.240 | So in my opinion, when we all start to think about our weight and our health at the end
00:09:20.520 | of the year and what are the two largest, most popular New Year's resolutions every
00:09:25.640 | single year, that's get richer.
00:09:28.400 | And the bull market has helped us do that.
00:09:30.360 | Listening to this podcast and reading personal finance sites like Financial Samurai hopefully
00:09:35.020 | have helped you do that.
00:09:36.820 | But the one thing that has lagged is our fitness because we're all stuck at home or a lot of
00:09:41.080 | us are.
00:09:42.080 | The average weight gain is 29 pounds and the average man is 200 pounds and the average
00:09:46.120 | woman is like 166 pounds.
00:09:47.760 | I mean, that's a lot, folks.
00:09:49.680 | So we got the money.
00:09:51.200 | Well, at least investors have more money now.
00:09:54.640 | But if we don't have commensurate health improvements, I don't know whether all that money will really
00:10:00.940 | matter if we start feeling sick.
00:10:03.140 | So that's my thesis, folks.
00:10:05.000 | Use online data.
00:10:06.440 | It's out there.
00:10:07.800 | Pay attention.
00:10:09.320 | Track those data points because sometimes they come true and they give you some insights
00:10:14.560 | into what actions you can take to make more money.
00:10:17.640 | Now, of course, none of us know the future.
00:10:20.440 | Right.
00:10:21.440 | So my investment in health and fitness could clearly backfire.
00:10:25.080 | Maybe COVID comes back again and people go back into their homes.
00:10:28.840 | Who knows?
00:10:29.840 | But that's investing.
00:10:30.840 | There's never a guarantee.
00:10:31.840 | If you want to guarantee you just keep cash under your mattress or you buy CDs up to $250,000
00:10:37.320 | per person and then that's guaranteed.
00:10:39.400 | But if you want to be an investor, you've got to look forward.
00:10:42.000 | You've got to connect the dots and see what's out there.
00:10:45.380 | So that's my thoughts.
00:10:46.380 | If you have any negative viewpoints about the health and fitness center, why it's not
00:10:50.560 | going to come back and any other kind of reopening trades, I'd love to know.
00:10:55.080 | Leave a comment in the post.
00:10:56.840 | And if you enjoyed this podcast, I'd love a positive review.
00:10:59.400 | I'll talk to you guys later.