BY Allen Kenney BY Allen Kenney Confidence Game ınthek[now]
S TEPHEN MALLON/GET TY IMAGES
Like Baby Bear’s porridge, it seems like market sentiment needs to be just right for an economy to function properly.
When investors and financiers hit that magical tipping point
where confidence is transformed into hubris, history has shown
that’s when crashes and panics happen. The “can’t-miss” feeling
and promises of outsized returns have a mysterious ability to
mask risks that seem clear with hindsight.
When the results of this overconfidence begin to play out,
though, an equally damaging effect typically ensues: timidity.
Risks lurk around every corner—every purchase, every sale,
every deal. It’s enough to make people want to hoard their
cash like business travelers accumulate frequent flier miles.
The reality is that, as Nobel Prize-winning economist
Milton Friedman pointed out, there’s no free lunch, either way.
A 100 percent guarantee of success on an investment is the
financial world’s perpetual motion machine. The best that can
be hoped for is that risks are effectively “managed” to the best
of abilities.
Ironically, then, enduring confidence comes from knowing
that “risk-free” is as fictitious as Goldilocks.
As the commercial real estate industry emerges from this
severe global recession, this kind of rock-solid confidence in
the market seems to be returning, and quicker than expected.
Despite dire predictions, the REIT industry looks to come away
from the downturn relatively unscathed.
That can’t just be a matter of luck or fate. It’s the product
of strong management and an understanding of the true nature
of risk—and reward.
