By

Uncle Zally / Stu Silver / Zalman Velvel

 

 It’s mid-August and once again I was at the Kangaroo Convenience Store in Ocala, Florida.   There was no room at the two metal tables outside, so I stood by my car, sipping coffee and nibbling on a strawberry cheese muffin. I had my first cheese muffin two weeks prior, so I’ve become a connoisseur, trying out different flavors. 

It was six in the morning, the sun was not up yet, and once again, the gas pumps were crowded with vans and pickup trucks. As I sipped and nibbled, I wondered what I would write about this week, and thought about my friend, Dovie. When I finished sipping and nibbling, I drove back to my newest investment, a lakefront mobile home park, and that’s when this week’s topic came to me, once again supplied by the good old Kangaroo

My muse was Peggy, the middle-aged woman at the register. While she was ringing up my coffee and strawberry cheese muffin, she asked, “Do you make things out of silver?” She pointed to my T-shirt, which had the name of our company, Silver & Silver, on it.

 I said, “The only things I’ve ever made out of this Silver were our two daughters and son, and the six grandchildren that followed. (I only had a supporting role in the grandchildren.)

She smiled, so I continued.

“We chose the name because my wife and I have a family real estate business. The only silver I ever owned was a 1,000 ounce bag of old U.S. coins, the kind that were really made from silver. I bought the bag for $24,000, around 1980, and then sold it and lost half my money a year later.”

“Oh,” Peggy responded. She did not ask what I did with the money after I sold the coins because there was a guy in a leather jacket, holding a motorcycle helmet and a hot cup of coffee, waiting in line behind me. The scowl on his face showed he wasn’t the slightest bit interested in my past silver investment.

That short episode at the Kangaroo counter caused me to think back to the man that sold the silver to me, then bought it back. He was a short, nervous guy who operated out of a small store in Manhattan. He carried a gun on his hip, and had the eyes of a rat, but a rich rat. He was interested in what I was going to invest the money in, and he asked.

“Real estate,” I answered.

“Real estate? What’re you crazy?!” he said. “That’ll turn your remaining half into a quarter of what you started with. Leave your money in precious metals. They’re bound to go back up.”

Let me fill you in on the financial atmosphere back then. Inflation was 20% per year, mortgage rates were 15-20%, real estate was not selling, and I bought 2 year U.S. Treasury notes yielding 15%. That’s right. 15%.

In spite of the advice from the gun toting silver expert who looked like a rat, I took my remaining $12,000 and partnered with my father-in-law on a four-family apartment building located on the corner of Bismark and Benziger Avenues in Staten Island, N.Y. That’s right, we bought four units for $24,000 because hardly anybody wanted to buy real estate in 1981, so it had to be cheap to attract investors. I knew zip about real estate, but a preliminary calculation told me I would receive $7,500 net each year from my share of the rents, a 60% return. Eight years later, when we sold the building for more than $140,000, and I netted $70,000, a final calculation told me I made almost 6 times my money back in profit, in addition to the 60% I earned each year in rent. I had no clue as to what I was doing … but it made sense on an instinctual level.

In contrast, when I bought the silver, I knew exactly what I was doing. I had been working on Wall Street for ten years, and I read four newspapers each day, and ten investment magazines and newsletters each month filled with articles by Nobel prize-winning economists. The conventional wisdom was to buy precious metals and keep away from real estate. Silver went from $24 an ounce, when I bought it, to $12 an ounce, when I sold. Years later, it went to $4 an ounce. It would have turned my original $24,000 bag of silver into a $4,000 bag, if I stayed invested. (Now, as we being 2011, it’s bouncing around $25-$35 an ounce, so it would have been a terrible investment over 30 years, starting at $24/ounce.)

Why am I bringing this up now? Because when Peggy asked me if I made things out of silver, it made me think of the experts I have listened to in the past, because those same types of experts are giving the same conventional wisdom now that they were offered 30 years ago ; buy gold and silver, keep away from real estate. Newspapers, economists, and gurus with investment letters are once again predicting the sky will fall, followed by end of the world, so you should bury some precious metals in your back yard.

In contrast to this conventional wisdom, my friend Dovie and I are buying mobile homes and mobile home parks at huge discounts. We figure, sometime in the future, when we all of us Americans get together and stop complaining about how much real estate has gone down (after forgetting how much it went up, and so quickly), and we pick up the pieces of sky that have fallen and glue them back into place, there will still be people who need affordable housing, and will continue to pay us well in order to live in our mobile homes and mobile home parks.

What do you think?

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