Real estate can be an abstract concept. If you're a capital allocator, it might be a line item in one of your spreadsheets. Or, if you're a developer primarily focused on zoning and entitlements, you might think in terms of gross floor area. How much density do I have, and what is it going to be worth?

This is not to disparage any one component or participant within the development supply chain; it is simply to say that development is long and complicated, participants will naturally specialize, and everyone will have a lens through which they see things.

But at the end of the day, these activities ultimately come back to fundamentals: the real estate needs to house people and things, and do something. Gross floor area has value on a spreadsheet because it can be turned into something. And it is ultimately that something that determines how much it is worth.

If you're a developer selling entitled land, your direct customer is the next developer, the one who will ultimately build out the site. Then, that developer's customers are the people who will ultimately buy, rent, and occupy the space. And in some cases, those customers will also have their own customers, if, for instance, they choose to buy a space and then rent it out to somebody else.

So there are layers to this. But regardless of where you might sit within the chain, I think it's always helpful to focus on the customer, or customers. It's harder to be wrong with your assumptions if you drill all the way down and consider the end use cases.

Cover photo by Israel Andrade

Back in 2011, Marc Andreessen wrote a widely cited blog post where he argued that "software is eating the world." In some ways, it feels like just yesterday that I first read it. But it has been 15 years, and boy, has the world changed. Now, the worry is that AI is eating software.

It has become significantly easier to write code, to the point that in the span of only two years, Google has gone from 0% of its new code being written by AI to now over 75% of it! But it's not just big companies. I know lots of non-technical people who wanted software that could do "X," and so they just vibe coded a solution. Done.

In fact, I've been experimenting and doing the same for several months now. It has become so easy that I feel an obligation to do it. But as we know, if everyone can do it, then it means there is no longer any value. The value will necessarily need to be created in other ways.

Earlier this week, we spoke about Uber and how being asset light — previously a hallmark of the gig economy — is potentially now a liability. Well, this is a broader theme. Josh Brown, CEO of Ritholtz Wealth Management, even coined a term for this: HALO. This stands for Heavy Assets, Low Obsolescence.

The general idea is that you now want physical stuff with a big moat that is immune to being disrupted by someone in their parents' basement using Claude Code. Hard assets are, arguably, where you want to be today. I guess that means real estate is back, baby!

Cover photo by Tim Mossholder on Unsplash

I just saw The Real Estate God argue the following (on Twitter): "What people don't understand about the S&P is that every single person in the country who has money is also invested in it. When your money goes up 15%, so does everyone else's. You gained zero relative wealth. You need to outperform the S&P if you want to actually get ahead." The implication of this is that when you then go out and compete for a "fixed pool of high-quality assets" — such as a home — you have no comparative advantage against everyone else.

Yes, and no.

I think this tweet is true in a narrower, segmented sense. One of my personal life philosophies is that it's important to do things that others can't or aren't willing to do. It's important to be disciplined, make sacrifices, and put in the work; otherwise, you revert to the mean. You have to be different! It's one of the reasons that I've maintained a daily blog for nearly 13 years. I enjoy it and there are benefits to doing so, but it's also painfully difficult and not something most people care to do (perhaps rightly).

Small improvements and outperformance can also make a huge difference when looking at a long enough time horizon. Consider this simple table showing a starting balance of $100k and annual returns ranging from 10% to 15% per annum.

If 10% represents the expected return of "the market," look at how much of a difference even one percentage point (increase to 11%) can make. Over a 30-year period, it's more than half a million dollars. And between 14% and 15%, the delta is over $1.5 million! The simple and commonly discussed lesson here is that small incremental improvements compound and can make all the difference when applied with consistency and discipline.

But to find alpha in this way (outperformance), you arrive at a subset of "being different." To outperform the market, you generally need to be right about something that most people think is incorrect. Because if everyone believes something to be true, it's not being any different; it's just "the market" and there's no alpha in that.

So in this sense, if you want a high degree of relative wealth creation, if you want to retire early with a yacht in Monaco, and you don't want to wait for the decades of compounding to start delivering the bulk of its fruit, then yes, you will likely need to look beyond just the S&P and take on additional risk to get there.

This is the "yes" part. Now let's consider the "no."

It is estimated that about 40% of Americans have no exposure to the stock market, that the wealthiest 10% own roughly 93% of all outstanding stock shares, and that the wealthiest 1% own about 50% of the market. Canada exhibits a similar story of high concentration, although it's less extreme, and Canadians tend to be more invested in residential real estate compared to stocks and business equity.

Regardless, there is a question of allocation. When the market goes up 15%, it doesn't affect everyone equally, and it actually increases overall inequality given the above concentrations. Though if you're competing for a €6M apartment in Paris, you are admittedly competing within your narrow socio-economic band against people who probably have exposure to equity markets.

There's also a behavior gap. If you buy the S&P 500 and hold it for 30 years, you would be an extreme statistical outlier. Most people don't do this. They get emotional, they sell when it falls, and they try to time the market. Here, for example, is a study that found that in 2024 the average equity investor earned 16.54%, compared to the S&P 500's 24.02%.

Despite strong performance in the equity markets, investors continued to underperform due to their behavior. Withdrawals from equity funds occurred in every quarter of 2024, with the largest outflows taking place just before a major return surge.

So even if you are just buying the S&P 500, there are still ways to be different and achieve relative outperformance. You just have to be patient and have the right temperament.

That said, even if you were extremely disciplined and you behaved for, say, 30 years, it would still be mathematically impossible to achieve something like Elon Musk-level wealth. You could be a multimillionaire with Monaco yacht level wealth, but not a centibillionaire. For that, you'll need to actively take on more risk and, yes, outperform the market.

Cover photo by Sean Pollock on Unsplash