Viewpoints

2016 20/20 Investor Summit Report: What should we do about the future?

Posted on September 16, 2016 in Viewpoints by admin

cover-1 “Prediction is very difficult, especially if it’s about the future.” – Niels Bohr

(For a print version of this report, click here.)

The fundamental essence of real estate investing is prediction. What does an investor believe the value of an asset might be in five to ten years? What changes in the economy, what changes in the region, what changes in the tenancy, what changes in capital might influence the final outcome?

It’s interesting to reflect however that our pro-formas are almost never absolutely correct. Perhaps that’s because the future is always changing – and the investor, no matter how diligent, cannot possibly see everything that hasn’t happened yet.

But what if we could do a better job of preparing for change? What if there was a way to explore possible future scenarios, understand them, and then set a flexible strategy based on what is learned? Royal Dutch/Shell pioneered this approach successfully in the 1970’s and has been consistently better at forecasting than their competition, and since then a broad range of industries have used scenario planning effectively to anticipate and prepare for change – why can’t real estate?

This year’s 20/20 Investor Summit was held at the University Club in Chicago, the first gothic skyscraper designed by Martin Roche and built in 1909. In the first decades of the 20th Century, Chicago was the equivalent of today’s “Silicon Valley” where all the new technology, new venture capital, and new disruptive businesses could be found every day. How appropriate that we spent this year’s summit discussing the future through four potential scenarios in the same place where disruptors gathered a century ago. Investment managers were able to stretch their thinking, find new ideas, and potentially prepare themselves for a dynamic future. The scenarios looked at changes in data, energy, capital, manufacturing and shipping. No one scenario is likely to be 100% true in the future, but there are aspects in all four that could dramatically shift the value and the process for commercial real estate investing.

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Here’s a report from that summit:

Scenario One:
Data Disruption

The group was asked to imagine a scenario five years from now – when LP’s have decided that they will only invest with GP’s that are able to provide radical, real time data transparency. No longer will it be good enough to just provide strong quarterly report and respond to data requests, in this scenario LP’s demand that managers provide granular, real time reporting on every aspect of every asset – and leverage data collected on the industry and their assets to find better strategies and better predict the future.

This is not so far-fetched. Several firms today are raising the bar on what is possible, and more advanced management platforms are adapting new strategies and process that put data at the center. However, according to Jason Kern of LaSalle Investment Management, “There is a sense of complacency in our industry. If you look at any other industry, such as banking, they already understand that tech disruptors are threatening their whole business models for lending, credit card processing, even payment settlements.” How long before aspects of our industry are replaced by some sort of data driven solution?

Are on-line syndication or crowd funding platforms such as Fundrise, Realty Mogul, or Cadre a potential threat to our way of life?

John Noell of Mayer Brown started off the discussion by exploring what the legal and regulatory challenges might be for a crowd funding business to disrupt investment management. Any potential disruptor will certainly have to “lawyer up” in many ways like Uber in order to displace taxis and limousines. Noell set up a hypothetical scenario to illustrate, using LaSalle as the manager.

“What if, in the future, investors aren’t really comfortable any more with comingled funds?” Instead, a company like LaSalle might identify a multi-use property in San Francisco and instead of buying it out of a fund, decide to solicit a small group of investors through an on-line mechanism. If there are five investors in this investment, the leakage of information amongst those investors could pose a problem. What if one of those investors ends up on the buy side as well?

The faster the investing velocity in digital platforms, the more challenging it becomes to meet legal disclosure requirements – and potentially the more difficulty a platform might have with regulatory agencies both in and outside the US. Under the new model, “Every time a manager goes out to create a property asset portfolio, it is selling securities. That is not the case with traditional commingled funds. In the new model, a platform needs to worry about disclosures in a way they never did before.”

It won’t be easy – but whoever figures out how to get past these and other hurdles might have quite an advantage.

And the faster the investing velocity in digital platforms, the more challenging it becomes to meet legal disclosure requirements – and potentially the more difficulty a platform might have with regulatory agencies both in and outside the US. Under the new model, “Every time a manager goes out to create a property asset portfolio, it is selling securities. That is not the case with traditional commingled funds. In the new model, a platform needs to worry about disclosures in a way they never did before.”

To add to the difficulty, real estate as an industry is not quite where it should be on data yet. According to Jay Parsons of RealPage, “When it comes to data for commercial real estate, we feel like we are in a closet with sunglasses on.” Although we collect more information than ever before, and companies are starting to get a handle on organizing property, capital markets, and leasing data, it hasn’t yet changed the way we invest. “Data disruption can change the way you buy/hold/sell and look at your portfolio. These days too many investors create an investment story they have a gut feeling about and then find the data to support it.”

Too often we lean on our conventionally accepted wisdom of how the world works, and yet, if you analyze actual data, your conclusions will be markedly different. Parsons pointed out three commonly held assumptions that actually are wrong:

According to Parsons, “too often we choose the data we want to reflect our hypothesis.” At the same time, not using data efficiency causes this industry to leave too much money and too much opportunity on the table. Do we really know what is happening with our own tenancy? Even if we increased renewals by 10% or 20% by anticipating demand through data analysis, the impact on value could be well worth the effort. Today, risk assessments are mostly based on macro level themes, what if we could understand risk at a tenant level? If that improved predictions by 10% to 20% would that have a meaningful impact on a portfolio’s returns?

How can we better understand what risk really is? Our industry might be ripe for disruption because we aren’t paying close enough attention to the data. We need better metrics. Most of what we look at now are lagging metrics that measure things after the fact. We need metrics that indicate the future, not just what our rent rolls looked like a month ago.

Chris Happ of Goby Inc pointed out that too many people think tech companies are a threat, and yet, “Data is the disruptor – not technology. If you can mine the data appropriately, you can find insight that others miss.” Including how to better look at risk.

As an example, Chris referred to a little known fact about the Van Halen “Brown M&M Rider” in rock concert venue contracts executed by the band. They require that any venue they play provide bowls of M&M’s backstage, but none of them can be brown. If the venue does not comply, the band can walk from the performance. If the band finds even a single brown M&M backstage, they throw a fit. Usually chalked up to rock band eccentricities, this is actually a brilliant strategy used to reduce risk.

They were one of the first big rock acts to play at many small market venues that aren’t always adequately prepared for a full-on production. Power demands might not always be safely provided for, concert floors might not be strong enough to support the equipment, or flying entrances and exits might not be up to the band’s safety requirements. Many poorly run venues are staffed by people that do not read contracts fully and do not understand the requirements.

If the band arrives at a venue and sees brown M&M’s, they know their entire show is at risk– and possibly their personal safety. They then do a full line check of the production – and possibly walk if there is anything wrong. One small data point tells them everything they need to know to manage their risk.

Where might there be data that could tell you something as powerful as a brown M&M? Happ suggested there might be something in sustainability reporting. “What happens when you know detailed operational data currently used to report to GRESB? Can you better understand the actual value of those assets? Can you better predict what the costs and value might be in the future?” It’s an excellent treasure trove of data – and some investors are now putting data scientists to work to find out where the advantages might be.

And perhaps, what happens if we can do more than interpret data. What if we could sell it? Happ pointed out that this is going on right now – Orbital Inc. buys Google satellite data of parking lots for ROSS stores. Based on that data, they can better predict store sales than by any other method.

Jeff Wilson & Matt Rosen of Pereview picked up on that theme of data sales. According to Rosen, “In the future the most valuable commodity will be the data, not the building.”

Rosen posited, “Imagine digitizing every memo you get. Imagine being able to store every underwriting model. What about every lender term sheet? And then being able to marry the historical info to the future information. What kind of opportunity would that represent? What about bringing in information from the US post office, 10-year weather information and other data points? An effective analysis could look at this group of data sets and better predict the performance of assets in any market.”

How much more capital would this industry attract if it could come in with this sort of information analysis? And why aren’t we doing it now? According to Wilson, “if you can’t get your entire portfolio into one place it’s incredibly difficult to analyze the data. Everyone now needs to have a Chief Data Officer.” Not just an elevated IT guy – but someone who can implement a genuine data collection, management and analysis strategy.

Right now – all our data sits in multiple applications, multiple hard drives, and multiple databases. If we could just get our own stuff together, the impact would be significant.

Meanwhile – there are significant and robust data sets available that can be put to good use– but are not being used by real estate – yet. Narendra Srivatsa of Verisk Commercial Real Estate pointed out that we could transform risk analysis if we looked at different sources. “There is a real gap in commercial real estate risk data – and yet there are over 200 indices that could help you understand and price for risk across the globe. Commercial real estate is incredibly intertwined with everything that happens.” When Hurricane Sandy hit the east coast, the Jersey coast was hit for 5 days. Businesses were impacted heavily and there is very real data about the costs and probability of these kinds of events. Are you including that data in your pro-forma?

Weather data, disaster data, market data, industry data, and transportation data – we can all go a lot deeper than we are, and we can see realities of demand and risk far better than we do now. “I encourage you to figure out what questions you have and what answers you might need because the data is out there,” Srivatsa said in his conclusion.

Can we put a number to weather risk? Can we find more than we have now? Good questions to consider. Whoever answers them will have a distinct market advantage…distinct enough an advantage, that it could be devastating. Ryan Masiello and Andrew Flint from VTS reminded everyone in the room that even though commercial real estate has historically been slow to adopt technology and use advanced data analysis, that doesn’t mean it will be continue to be slow. Based on their experience of growing VTS into a significant application for real time leasing and deal updates, in only a couple of years according to Masiello, “real estate is adopting now, and at a record rate.” Flint added, “remember that change happens to even the largest and most powerful. Dinosaurs were wiped out in a flash by a single meteor strike. It can happen to anyone.”

They pointed out that Steve Ballmer, the former CEO of Microsoft said the following in 2007 when asked about the iPhone: “We are selling millions of phones a year, Apple is selling none, let’s see how they do.”

In 2007 Apple’s annual revenue was half that of Microsoft. In 2010, their market cap exceeded it. Three years ago VTS, Hightower, and Pereview didn’t exist. According to John D’Angelo of Real Foundations, “What is happening now didn’t exist in the past. The rules of the game are changing, and five years from now, it may be difficult to believe we ever did things the way we do now.”

A lot of discussion followed from the investment managers in the room – and many felt that they might consider some new approaches to data in the next few years. Frank Forelle of Zeller pointed out that Google invested in a group called Auction.com (now called TenX), that can predict markets better because they track what people are looking at online. “If we can standardize all our data, get it out of Excel and into a useful database – we might actually be able to predict our markets and our asset performance better – but it is going to take a real effort to do that. This has to be a crucial part of everyone’s job.”

George Pandaleon reflected on the difficulty of building our own data sets. “There’s such a poor quality of data that we have today – not just the problem of where it is. Do we need to start over from scratch, and perhaps start by buying data from Google or cell phone data? Perhaps that data would work better than what we have in our spreadsheets today?”

The point was made by many that we should be able to analyze data from our portfolios in any number of ways – just like other investment classes, so that we can see where exposures are, where there may be imbalances, and where there may be unseen risks or opportunities.

And what happens then? As Jason Kern observed, “Today, the data is just not accurate enough. If it becomes more so, can algorithms ultimately replace some portion of investment teams? What part of our jobs can be better done by a computer working with data vs. a hunch?”

Scenario TWO:
Energy Disruption

The second scenario considered by the group centered on the idea that perhaps our recent historic drop in prices is less an anomaly and more of a permanent drop. What if, thanks to breakthroughs in micro fuel cells, solar technology and other renewables, commercial buildings become completely self powered, automobiles quickly switch to electric, and the demand for oil, gas, and coal only decreases. How would we have to adjust with our strategies?

Matt Eggars, VP of Energy Management at Yardi and former executive at Tesla Motors and Sunrun, Inc., shared his view with the group regarding this scenario. Put simply, he sees plenty of reasons to believe that the long term trajectory for oil & gas demand is going down instead of up. In March, The National Renewable Energy Laboratory announced that the average cost of solar power from rooftop panels is now 12.2 cents per kilowatt hour in the US, about the same as the average retail electrical rate. Since 2009 the cost of solar power has gone down by 70%, and price decreases are likely to continue over the next 20 years.

Wherever solar power becomes significantly cheaper than other sources of electricity, the cost of traditional power will go up. According to Eggars, “If there are defections from the electrical grid in any number, the price for that electricity will go up – as the electrical utility will have to maintain the same capacity with fewer customers and lower revenue. Then the more people leave, the more the price will go up. Very quickly, much more quickly than one might expect, we will see a power grid death spiral.”

There is a good chance that, with dropping prices for solar panels and home power batteries, some of the traditional big power providers will go out of business and rolling blackouts could become a reality. To make matters worse, if big power providers engage in renewable power generation that is vulnerable to changes in the weather, customers on the grid will have to accept spikes in power prices.

To summarize, a change to a new source of power will not happen slowly. Our electrical power economy could dramatically shift in just a few short years, and create economic volatility for many actors beyond the power production business – real estate included.

Do you have charging stations for cars in and around your building? According to a Bloomberg New Energy Finance Report, electric vehicle sales in 2015 were up 60% from the previous year and it’s expected that electric cars will cost the same as gasoline driven cars by 2022. As those sales grow, charging stations won’t be an amenity, they’ll become a necessity.

Disruptive change is a challenge, and can keep many investors up at night, but Spencer Levy of CBRE had a remarkably positive spin on how changes such as these are important. According to Levy:

Here’s why, according to Levy: “After the financial crisis, New York reinvented itself again and is now bigger than it was before. New Orleans has reinvented itself and begun to address the intractable issues that no one thought could be changed before.” Houston has always followed the fortunes of oil, but the longer it stays low, the more other industries and other commodities will grow in their wake, the reality is that any economy built on a single commodity or industry will fail if it is unable to adapt. These disasters force adaptations and diversification. Actually Houston’s population has continued to grow since the drop in oil prices at some of the highest rates in the country – more than 12% since 2010. That kind of growth suggests people have something to do there besides process oil.

But what happens if oil prices continue to drop – say to $10 per barrel? With demand potentially shrinking, and the Saudis beginning to make big fire sale shifts out of oil and into other industries, this could happen. We could face a Venezuelan civil war for example, regimes in the middle-east would literally run out of gas. The costs of U.S. based manufacturing could dramatically lower, while shipping and transportation would become cheaper still. That could change the entire logistical system that real estate engages with.

And there’s one other question waiting in the wings when considering “Peak Oil”, what happens to the flow of real estate capital when the supply of “petro-dollars” declines world-wide? How much of our investment activity is driven directly or indirectly by the price of oil?

Change is not a gradual, orderly thing. Most often it comes in the form of crisis. Sudden crisis.

Do we need to re-think the value of real estate when the grid is no more? How can we prepare for that? Do we need to better understand “oil-patch” economies as diversified? Are we ready to find other sources of aggregated capital? With questions like these hanging in the air, it was clear to everyone that more thinking is required. According to Christopher Merrill of Harrison Street Capital, “We all must engage in scenario planning. It’s natural for people to assume that things will just keep going up and up – and yet we know that they rarely do. We have to think through, understand, and prepare for any number of changes affecting our business model.”

Scenario Three:
Capital Disruption

In our third scenario members were asked to imagine what would they would do if in five years there is an extreme shift in capital sources: Foreign investments might have to be repatriated in the wake of plummeting oil prices and rising terror panic. Xenophobia might truly take hold and the US could declare any real estate asset over $50 million to be strategic and therefore not allowed to be owned by a non-US entity.

This scenario, despite its terrifying implications, has plausibility. Five years ago, foreign capital was much more scarce than it is today. Now the majority of real estate investment managers have a significant amount of foreign sources in their investments. Tomorrow, that might not be the case but today it is the fastest growing source of capital “fuel” for commercial real estate.

Consider the story told by Alexandra Viloche, publisher of the Miami Herald, to NAREIM members during the Spring Executive Officer meeting. To mitigate risk before the global financial crisis, their team planned for what they thought might be the worst possible market correction: A 15% drop in ad revenue over 5 years. Instead they lost 80% of their ad revenue in under 12 months.

“What is the stuff that is too scary to look at?” Asked Gunnar Branson, “that is what we must look at.” Do we really understand all the risks we are facing?

Matt Henry, Managing Director at Chatham, pointed out, “If you are in the real estate world you are in the risk management world.” But not just risks related specifically to real estate, “we need to take into account capital risks which tend to be more complicated than many would think.” Fund managers and C-level executives need to have a handle on the fluctuations and mechanics of capital markets. “There is an old perspective vs. new perspective change going on.” The old perspective being an isolated approach to risk management where one department deals with currencies, another deals with debt, and yet another with accounting but the fragments never really come together. Another common isolation is that risk management gets off loaded to the acquisitions team and individual deals are analyzed but an entire portfolio may not be. “The true measure is not which individual variable will create risk. It is how multiple variables interact with each other.” So a strong “new perspective” risk management strategy has to be about how the interplay of many factors culminate in exposure or insulation.

According to Lucy Fletcher, Managing Director at JLL, only 15 countries are driving 90% of cross border investments into the US this market cycle. The biggest push evidenced by Canadian, Norwegian and Asian investors. The biggest region expansion is capital coming out of Asia. “What if they all went away? Chinese capital has really only emerged on the global stage this cycle, as such there is limited to no historic data on how it will behave in the event of a downturn.” We do know that oil has had a huge impact on asset allocation and that Middle Eastern countries are changing their strategies rapidly. “There is negative sentiment around foreign capital inflows driving market pricing especially in select markets in Western Canada and Australia.” The changes to FIRPTA at the end of 2015 were a slight yet noteworthy opening of the door for a potential increase in foreign investment. “Governmental change can happen overnight. How will that affect your strategy?”

How much of your strategy relies on the fear of foreign investors? Much of foreign capital is fleeing uncertain economics in their own countries and there is nothing quite so safe and reliable as American real estate. But the truth is, most of these foreign investors would probably rather do their investing closer to home where they know more about the markets. If the worldwide economic turmoil was to calm and a majority of countries were in the black instead of the red, foreign capital would no longer need to travel around the world to find safe investments.

“This might actually be a good thing,” noted Peter DiCorpo of CBRE Global Investors, “ODCE would get killed but high net worth people have been hard to get in the door lately and this scenario would necessitate developing a strategy to get them to the table.” If foreign capital pulled out, the price surge would likely level out allowing more margin in deals and therefore attracting more knowledgeable buyers. Frank Forelle, pointed out that many willing domestic investors have gotten pushed out because of rising prices.

It would also create the need for alternative capital sources. “There is a $6 billion opportunity in crowd funding,” according to Forelle. At the Capital Raising & Investing meeting in December Mike Brennan of Brennan Investment Group talked about his experiences with Realty Mogul. He needed to add capital to his high net worth bucket and did so with their “crowd funding” or on-line syndication platform. Brennan Investments has successfully used the platform many times now for various deals.

“Crowd funding is growing fast but it is largely based on investors interested in local markets that they know and trust,” according to Peter Borzak, Principal of Pine Tree. So it would be a logical source if capital was running back home. This begs the question: If foreign capital is being repatriated, wouldn’t US capital be coming back as well? Perhaps the shift from foreign to domestic would even out in the end?

“In some cases, the disruptors can be a lot simpler than we expect them to be,” said Barry Johnson, of State Street. The earth under our feet has been still and solid for a decade, and today there was an earthquake that we were not prepared for. “Changes happen more quickly that we expect but a lot of times the disruption we experience is self-inflicted.”

Amos Rogers of State Street, agrees. “Often times we disrupt ourselves.” With an approach to risk management that focuses on identifying current processes first, they have found a common underlying problem: Managers do not actively seek new investors. If we are not actively seeing new investors what will happen when the old investors stop investing? “This is a good example of how we create our own disruptions.”

Matt Henry chimed in again to end the discussion on a high note. He argued that risk management is not only about the negative. “It is just as much about the positive things in a portfolio that can help weather a storm, not just what is going to blow us up.” Worrying solely about what we may crash in to, or what may crash into us, can be a maddening and fruitless endeavor. However, if we have good system, or, to complete the metaphor, are driving in a car that has effective safety features, we don’t have to worry quite as much about the unavoidable collision.

Scenario FOUR:
A change in manufacturing, shipping & transportation

The final scenario focused on disruptive changes in manufacturing. The way goods are manufactured today is changing radically. Because of advances in robotics the cost of labor is dropping across the board. As a result, America is growing manufacturing capacity on shore. Simultaneously, 3D printing can bring manufacturing of other goods to the neighborhood or even into the home while Panamax is substantially changing the shipping of goods across the globe. What happens as these trends continue and even accelerate for the next five years?

Mike Brennan of Brennan Investments teed up the idea of a “the third Industrial revolution.” “The first revolution centered on the invention of machines. The second centered on the synchronization of machines. The third is focused on mass customization of machines. Manufacturing is going digital,” he claims. Any city that has been around for more than a century is surrounded by concentric circles of ageing, abandoned, and eventually re-purposed industrial property. “China is just the most recent and distant circle,” but it’s already showing signs of age, and perhaps obsolescence. “When we invented the standardized shipping container it allowed China to become a manufacturing superpower.” But it did so because oil was cheap and Chinese labor was cheaper. But the economics of that geographic expansion are changing. “The third industrial revolution is here already. Advanced robotic manufacturing and 3D printing now allow for meaningful scale. But we will not gain jobs because of it.” The first two revolutions made nations much richer and much more urban. They also brought with them massive increases in the labor force. “This is a revolution without jobs.” If robots are performing all the labor, the cost goes to almost zero. The only cost associated with completely mechanized manufacturing is maintenance and the computer programmers needed to create the software. “Out of our 180 industrial tenants, there isn’t one that isn’t automating.” Because after all, robots don’t join labor unions.

So if the cost of manufacturing comes way down, and the distance between the consumer and the factory also comes way down, US infrastructure will need to be improved. With consideration to infrastructure, Byron Carlock and Bill Croteau introduced the notion of “Real Assets.”

“Many companies are combining real estate and infrastructure into a new category called Real Assets,” said Carlock. The completion of the big dig in Boston allowed more access and transportation into the city and resulted in a $47 Billion increase in new property. “Once infrastructure dollars are spent, the returns are up to 10 times that expenditure for real estate.” But many city’s roads and bridges are crumbling. The vast majority of interstates and publicly used arteries haven’t been properly maintained since the ‘60s when taxes were extremely high and public works programs were still in full swing from the FDR era. “US infrastructure is the sky falling, we are projected to spend $100 trillion on it over the next half century.” However, it might not be the government that shells out the cash. “In Dallas, Clybourne Park has transformed the city and added two new residential areas that were formerly indigent housing and manufacturing facilities. But when the necessity of these projects was identified, there wasn’t enough in the city’s coffers to undertake them.” So some of the wealthiest residents of the city stepped up and created, “philanthropic infrastructure.” This phenomenon is occurring in multiple cities.

What if we realize that we cannot rely on the goodness of the uber-rich? What if the government cannot, or will not, expend the necessary dollars to update our country’s failing infrastructure? “If legislation passed that required real estate developers to also invest in infrastructure, that would have real implications,” warned Croteau. “What if your CIO said infrastructure is now part of our portfolio? What would that mean?”

Many companies are already establishing infrastructure funds alongside their development funds. “$15 Billion was raised in funds of this type in 2015. $14 Billion in 2014,” said Carlock. There is plenty of ready money at the moment. In fact a McKinsey report on the subject said that, “spending the money, not raising it, is the biggest problem when it comes to financing infrastructure.”

“You’ve got a situation where people are excited and money is being raised. Everybody knows the costs are going to be staggering yet we can’t get into a project,” said Croteau. The timeline is changing, the expectations are changing, and the complexity is increasing. The planning and foresight it takes to fund a new development increasingly includes the surrounding infrastructure.

The changes in manufacturing, distribution, and infrastructure will likely transform not just the economy, but the very nature of real estate investing over the next five years. Where should we invest now, if robots and 3D printers dominate? How should we understand and take advantage of changes in infrastructure? What will happen to the values of our existing portfolios that, perhaps, assume a continuation of the way things currently are?

The discussions at this meeting quite often centered on how quickly much of these trends are changing how we should think about real estate investing – and the time scale for these changes is well within the current investment horizon of acquisitions made today. How should investment committees think through these impacts? The world is changing fast, and we all need to take that into account.

“One thing is sure. The earth is now more cultivated and developed than ever before. We’ve become a burden to our planet. Resources are becoming scarce, and soon nature will no longer be able to satisfy our needs.”

Dan Flanigan of Polsinelli introduced this warning originally written by theologian Quintus Septimus Florens Tertullianus in 200 AD. Either he was incredibly ahead of his time or worrying about the future is nothing new for human civilizations. Infrastructure has been crumbling and being re-built for ages. Capital and revenue streams have dried up and sprung to life in other places countless times throughout history. Energy has come from many different sources as they present themselves. Change happens. The trick of course, is to anticipate it so you can take advantage of it.

“Have a beginner’s mind.” Advised Flanigan, “Stay open and un-judgmental. The beginner sees many possibilities. The expert sees few.” It stands to reason that the older we get, the less new tricks we learn. We innovate less because we see more potential roadblocks in the way. But it is that childlike mentality, argues Flanigan, that wide eyed kid who sees nothing but a bright future ahead full of endless opportunities that we must hold onto if we are to be able to change with the times, and benefit from that change. There is danger in becoming the grand expert. It’s against our nature to work for years to achieve a goal and gain aptitude in something only to leave it behind and start anew.

We are risk takers, soothsayers, and fortune tellers. We are cautious adventurers, pessimistic assessors, and historians. We are geeks, nerds, and at times, rocket men. In trying to address the unanswerable question, “what do we do about the future?” Matt Henry put it best in his discussion on risk, “We know the next problem that tanks the market will not look like the last one. We need not try to divine what it will be, but set ourselves up to weather many scenarios.” For the flood may come from any direction, but if you are resilient, flexible, and thoughtful, it doesn’t matter which.

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