Data Is Everywhere... Just Use Your Eyes

You don't need an elaborate lending report to tell you commercial real estate ('CRE') isn't doing well...

All you need to do is look up.

Back in 2017, former Mayor of Chicago Rahm Emanuel celebrated the 60th active construction crane operating in the city. After he left office in 2019, the number of cranes plunged to single digits.

Chicago's current mayor, Brandon Johnson, is still feeling the pain from falling construction. In 2023, the city collected over $200 million less in taxes than it expected. Slower real estate activity alone hurt tax collections by $50 million.

And this year, Chicago doesn't expect to break ground on a single new office building.

This trend isn't isolated to one city. In Manhattan, the number of construction cranes is down from more than 25 in 2020 to fewer than 10 today. San Francisco's count is down from 33 to 11 in the same time frame... and 37% of the city's office space is sitting empty.

Two days ago, we highlighted the significant challenges CRE faces in the post-pandemic world. The lack of demand for construction cranes illustrates just how hard it is to revive offices lately.

But while counting cranes is one helpful measure of economic development, it's by no means the only option. As we'll explain today, the average investor has access to a lot more data than you think...

Legendary mutual-fund investor Peter Lynch likes to say you should 'buy what you know'...

Lynch worked for Fidelity in Boston in the 1970s and '80s. And he noticed that local coffee chain Dunkin' Donuts was wildly popular.

Lynch loved Dunkin' coffee. Even though no Wall Street analysts were talking about the chain's rapid growth, he saw new franchise locations popping up all over the place. When he started looking into it, he realized what a solid business it was.

And he bought the stock on the way to gains of more than 1,500%.

My colleagues and I took a similar approach in my hedge-fund days. Our office looked out at the port of New York and New Jersey... So if we wanted a sense of how things were going in the shipping industry, we could count how many lifting cranes were actively unloading container ships.

If those cranes were busy working all day, it was a sign the shipping industry had plenty of business. If they had a lot of idle time, it told us the opposite.

Over the course of a quarter, we'd get a good idea of what to expect from the shipping industry's earnings announcements. We didn't have to wait for a company to tell us.

Some hedge funds even use satellite imagery to monitor how busy parking lots are at major retailers.

While that's probably not realistic for most everyday investors, you can get similar data with your eyes and ears...

Maybe you've noticed one grocery store in your town has gotten a lot quieter... while a new one has lines leading out of the parking lot every day.

Or perhaps your kids or grandkids can't stop talking about a new toy produced by one toymaker or another.

Likewise, if you're interested in a clothing retailer... don't wait around for the quarterly earnings report. Do some "boots on the ground" research. Go into stores and see how busy they are. That could be your first signal of a big trend before it's published in the news.

Most folks scarcely let themselves dream of gains like Lynch's. But he didn't rely on complex analysis or some sort of insider knowledge to find the opportunity in Dunkin'. And you don't have to, either.

Sometimes, a home-run investment starts with a simple observation.

Regards,

Rob Spivey
March 7, 2024