Since 1776, America has gone into an economic cycle of boom and bust, with recession a natural part of that process. And over the decades many smart investors have learned to actually embrace those economic disasters as a positive part of the process to creating wealth – and that includes mobile home parks. In this Mobile Home Park Mastery podcast we’re going to explore the good attributes of the pending U.S. recession and see what we can learn from those who dealt with this cycle in the past.
Episode 318: A Positive Approach To A Pending Recession Transcript
The US financial industry has since the beginning of its existence, tried to map out pending booms and busts. They did that purely to make money. If you were seeing that you were going into a boom time, you'd want to wanna buy those stocks, and if things were looking bleak, you'd want to sell them. This is Frank Rolfe, Mobile Home Park Mastery podcast. We're going to gonna talk about the pending recession and how to get a positive outlook on it, 'cause there are some really positive attributes for investors, for buyers of mobile home parks, and for operators, based on the natural cycles of up and down and the pending down one. Now, it doesn't matter which indicator you're looking at right now, clearly we are going to gonna go into a recession really, really soon. Just recently, they brought out the fact that the M2 money supply right now is at its worst level since 1929. And everyone's got their own theory of why we're looking down the barrel of something really, really bad economically, and most people think it will happen in the year of 2024, just next year. So whether you are a political fan of Bidenomics, or whatever you want to wanna call it, there's no way that you can convince myself, and it looks like most other economists, that we will somehow have the soft landing that some people have projected.
So let's assume we go into a recession, or a depression, it's more severe byproduct, then how can you feel good about that? How can you find that as something positive? Because in most industries, a recession can lead to utter failure and doom, right? Just 'cause we're in the mobile home park industry and we're insulated because we're contrarian, when things get bad, we get better. Are there any good things to look forward to from the pending recession? Well, if you read a lot of business biographies, as I have, you'll see there are, in fact, at least three good attributes to every downturn. Three things to look at in a very positive fashion. And it's reflected in the quotes of some of our greatest American business people. So let's first start off with a quote by Henry J. Kaiser. Henry J. Kaiser was the founder of the steel industry. We know of steel as Kaiser Steel, huge company at one time. And here's what he had to say about the Great Depression era.
He said, "Problems are only opportunities in work clothes." Now, what does that mean? What it means is that typically when you have a big downturn, there are opportunities that are created by that downturn. For example, during the last downturn, we were able to buy some mobile home parks at really attractive prices from people who had term defaults on their mortgages. The parks were fine, but they were unable to get their loans renewed because their credit scores and their personal net worth had plunged because of bad choices they had made in other businesses and other investments, including single family homes. And suddenly, good borrowers were thrust in the position of being, on paper, bad borrowers. And that wouldn't have happened. We could not have bought those mobile home parks from those lenders in foreclosure had there not been a recession. Other times, the recession basically makes people depressed, and they want to sell their business. So sometimes a recession or depression is the catalyst to finding really good deals.
But what Kaiser meant was simply that when you have a downturn, it also is opportunity for others. Just because you can't cut it in the difficult economy doesn't mean that other people can't. So basically, when times are bad, it's a good time to find deals to buy. Now, my next quote comes from none other than Conrad Hilton. Hilton is a amazing story of a guy that built a dynasty out of nothing, from a small town in Cisco, Texas. He built one of the first chains of American high-rise hotels. And then he lost the whole thing during the Depression, every single hotel. And then he later got them all back. He went around to the lenders as the US economy was recovering from the Depression at World War II, and he started buying his hotels back for a very, very small amount, much less than he'd paid to build them. And Kaiser, not Kaiser, Hilton said that what he had learned from the Depression was you never build anything. You just wait for a recession and buy it for a penny on the dollar 'cause that's exactly what he did. He built those big, towering hotels at a very expensive price before the Depression.
And then, during the Depression, he was able to then buy them back at a fraction of what he had spent. The very hotels he had built, he bought them for next to nothing by comparison. And why this is a reason to look positively at a Depression is often Depressions reduce the value of things. And in this case of mobile home parks, so when you have a recession, a depression, often the sheer depressing element of that causes there to be fewer buyers and very, very aggressively willing sellers. And the combination often is toxic for the sellers, and it causes prices to go down substantially. So there's another positive look at the recession/depression is it reduces prices. And that's exactly what allowed Hilton to get back on his feet and build the Hilton Hotel empire that we know today. Had it not been for the Great Depression, he would have never been able to buy up all those hotels. And he actually ended up better off from the Depression, because he not only went to buy back all his own hotels, but most of the finest hotels in America during the same period. He at one time owned the Plaza Hotel, the Palmer House, the Waldorf.
There was hardly a main hotel in the US that he did not ultimately buy at a ridiculously low amount of money. My final quote is from J. Paul Getty. And J. Paul Getty was a huge fan, more than either of the other two. He was the biggest fan of all time of recession/depressions. You see, Getty was the richest man in America back in the 1950s and the 1960s. And he got there starting out in the oil and gas industry, but he expanded into other industries. And he just relished bad times. If you read his writings, there was no one more enthused about the world when things got bad than J. Paul Getty. And what he loved about them was he thought it was a natural kind of cleansing cycle for business that allowed you to scrape off the barnacles off the boat. That was his quote, is that basically recessions are when businesses scrape off those barnacles. And what barnacles are, are living creatures that attach themselves to the bottom, the hull of ships, which slows them down and is bad for their upkeep.
And so he saw a recession or depression as being an ability to make his business better. Now, back when I had my billboard business back in Dallas, I built a billboard on a property owned by a guy with the last name of Norton. And he had a large fencing company. In fact, the largest fencing company in Dallas, Fort Worth. He just built miles and miles and miles of every type of fencing annually, chain link, barbed wire, stockade fence, you name it. And I had dinner with Mr. Norton and he told me the story of his career. And he told me the best thing that ever happened to him was the big recession back in the '70s. He said he almost lost the company and he was so depressed about the way things were going, he opened his desk drawer and he started to throw away everything in that drawer which did not help him. So pens that were working, he kept them. But the pens that were running out of ink, he threw them in the trash can. And the pencils where the eraser had worn off, he threw those in the trash can. And when he got done with his drawer, he continued on on the top of his desk. And then he went to the desk next to him.
And then he started looking at the people at the fencing company. Who was actually selling fence and who was no longer selling it? Who was dead weight? He started cutting people. He started cutting his vehicles. Some were running, some were in bad repair. He got rid of those too. And by the time all was said and done, he emerged as a much stronger and better company. And when the recession ended, that is what really allowed him to become the dominant force in his industry. And J. Paul Getty knew that because J. Paul Getty found that in bad times, that was just like us taking a shower every day. That was a time that we all got clean. We got honest. All the dead weight was removed and the businesses ran much more efficiently. The bottom line to it is that there's no reason to look at the pending recession in a negative manner. Most people will, of course, but they don't see the opportunity in it. They don't see the good attributes from it. It is very, very easy and correct to look with a positive light on any economic downturn. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.