Mike Zlotnik on Emotions and Intuition in Investment Decisions

This week’s episode is a doozy that can’t be missed! I interview Mike Zlotnik. Mike, often nicknamed Big Mike, is regarded as one of the leading investors in the world, specialising in debt and equity investing in real estate. As one of the most prolific investors I’ve ever met (and I’ve met many), Mike is the CEO of Tempo Funding Group, a mortgage pool fund and has also launched three additional real estate investment funds.

Throughout this interview, we talk about how and why he leaves emotions at the door when making investment decisions, where there are opportunities for investors who are interested in wealth creation over the next decade, and provides a unique perspective on what financial freedom means to him.

Connect with Mike:
Website: https://tempofunding.com/
LinkedIn: https://www.linkedin.com/in/mzlotnik/

00:00 – Intro
01:46 – Introducing Mike & What lessons did you learn in your childhood about wealth?
03:45 – How does your chess strategy thinking influence your thinking for investing?
6:20 – How do you leave emotion and cultivate awareness on decision?
9:01 – Do you have a gut feel about your decisions?
12:20 – What was some of the early decisions you made on your investment journey that had an impact?
14:46 – How do you respond to others saying ‘he must be lucky’?
17:49 – Is ‘making money is easy’ or ‘making money is hard’?
21:45 – Where do the opportunities lay over the next decade?
26:52 – What does financial success mean to you?
28:50 – Thank you

Q: What did money and wealth mean to you growing up?

  • Grew up in Moldova before emigrating to the USA at the age of 18
  • Money wasn’t an issue in a socialist society where he didn’t have much
  • Had a heavy interest in mathematics and chess

Q: How does being good at chess help with becoming a world class investor?

  • Chess is one of the best and most logical games out there
  • Three characteristics – it’s a sport, a game and played as in a competition
  • He learned analytical skills, logical thinking and creative problem solving – all things that chess teaches you
  • Always good at and loved mathematics
  • How this worked with finance? He studied mathematics in college in the USA and it was all natural progression by being involved in what he liked
  • Money is a simple trade if you understand the basics. If you stick with the basics and think logically, it isn’t difficult to invest and make decisions
  • Logical thinking is how he’s been progressing
  • Follows some great thought leaders in the space such as Warren Buffett
  • Started investing in real estate in 2000 – when he saw the power of real estate, the benefits such as leverage and appreciation, you don’t need to make it too complicated to get the benefits
  • Time builds wealth
  • Mike makes a key point that you need to differentiate between investing and trading, and real estate is all about investing by not timing the market and buying in stable options

Q: You say there’s no room for emotion in investment decision making. How do you leave emotions at the door yet cultivate enough awareness of how deals work to make decisions?

  • Mike acknowledges he’s a very unemotional person with very little sensitivity to emotions
  • His emotions don’t count towards any of his investment decision making
  • When he looks at deals, he simply thinks about the most fundamental elements of investing
  • Who you’re investing with
  • What does the deal look like?
  • Does it look like a deal he wants to invest in?
  • Decisions are purely mathematics, logic and finance

Q: Where does gut feel fit into your thinking when investing?

  • Mike calls it intuition
  • It’s something he learnt from chess and it’s become second nature
  • The first observation he makes is about the person he’s making the deal with:
  • Does he like the person?
  • Does he trust them?
  • Does he click with them?
  • Do they know what they’re doing?
  • Do they communicate well?
  • He evaluates his relationship fairly quickly
  • He mentions that particular important is whether someone is too good at communicating (signally potential fraudulence) or if they’re willing to admit and learn from their errors
  • He takes strong referrals to shorten the time to build cold relationships by working with a trusted source
  • He’s also methodical by working with a calculated checklist to evaluate whether someone’s genuine or a slick salesman

Q: What were some of the earlier investing decisions that had a big impact on you?

  • He mentions that you’ve heard of “ready, aim, fire” but he talks about an alternative strategy called “ready, fire, aim”
  • What this means is that you need to take action instead of over-preparing
  • This is how Mike’s invested in New York – he took action by buying and then holding for a long period of time
  • If you made a mistake and you bought something poor, you get rid of it as soon as you can. You lick your wounds and you move on
  • But he emphasises that if you don’t take action, you don’t learn
  • While you want to learn about mistakes from others, you learn the most from your own
  • To get a PHD in investing, you have to make a lot of investments, make mistakes and correct where necessary. Hence, ready, fire, aim
  • He’s constantly correctly

Q: People often look at people like yourself and say “he’s got it easy” or “he got lucky” after years of cultivating a reputation. What do you say to that?

  • Luck is a logical outcome from preparation. If you’re not prepared, you can get lucky but most times, if you prepare, luck follows
  • Book recommendation: Jack Welch – Straight from the Gut
  • One of the simplest practices that Jack Welch did at GE was to look at the top 20% and internally elevated/promoted them
  • The vital 70% were kept and the bottom 10% were eliminated every year – he likens this to Darwin’s law
  • Focusing on the best relationships is what his fund does
  • It’s not just about return on investment, it’s return on time – is the work you do with people pleasant and easy?
  • He prefers to work with people he likes
  • Life is too short to work with idiots

Q: Is making money easy or hard to you?

  • It’s not so much about how easy or hard it is, it’s more about whether you enjoy it or not
  • It’s more than just about money – it’s about lifestyle and designing your business around the life you want to live
  • You need to do something that makes you money to support this, which he calls “the genius zone”
  • Money’s just a score or a number to pay the bills and support his livelihood
  • What’s most important is that Mike enjoys real estate investing, generating a return, ensuring his team is happy, and working with people who he likes
  • Real estate with proper underwriting, in general, is a stable investment that can generate double digit returns without a lot of volatility when compared to other investment classes
  • Real estate is quite predictable and by maintaining predictability, you can generate the returns you want

Q: Where are the greatest opportunities for those who want to create wealth in the next decade?

  • He acknowledges that he doesn’t have a global view and can only speak from a US view (where he’s based)
  • Real estate is one of the best asset classes with great tax advantages
  • His fund does a lot of value-add investing – where value is created
  • They currently look at sites where they forecast some projects on stressed conditions to see what the downside is and then ultimately look at the upside
  • He only invests where his relationships are – he starts with people
  • If he finds a good operator he knows, likes and trusts them, he’ll commit to investing
  • Don’t invest in what you don’t understand

Q: What does financial freedom means to you?

  • Book recommendation: Rich Dad, Poor Dad by Robert Kiyosaki
  • Once you’re out of the rate race of meeting your financial obligations, it’s about enjoying your work
  • People talk about retirement – there’s no such thing. You have to do something else
  • You’ve just got to be happy
  • Money can make you very unhappy
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