Ethics
On a private forum this question was asked of me…
Tim, I know you always start the [Apprenticeship Program] with Ethics. Other than a basic societal ethical compass, what more do you consider important with regards to ethics? Does this entail looking at yourself and your motivation to be in the business of investing? Can you expand on this a little bit?
The Apprenticeship Program is an in depth, year long training session. But, the question about ethics is an important one. Here is my response..
It is more than just looking at your own moral compass. It isn’t just a question of what would you do in situation X. It is also, what led to you being in that situation in the first place?
I strive to get the student to look at why they are investing, what they hope to accomplish and how. Some have argued what I take them through is not really an exploration of ethics but I disagree.
Sure we look at the typical, “What would you do?” type stuff.
There are some very uncomfortable thought experiments that don’t directly deal with business or investing.
Such as…
Suppose you are a doctor and you have a patient who is 40 years old and comes to you for a normal physical. Diagnostic tests are ordered and it is found the patient has a terminal illness that with 100% certainty will kill them in the next 6 months. You know for a fact, they will never have a single symptom. The only thing that will happen is they will go to bed one night and just not wake up. If the law and your malpractice insurance didn’t require it and you knew there was absolutely no way anyone could find out you knew this in advance, it would not show during an autopsy, would you tell the patient?
There is no right or wrong answer and usually students fall on both sides.
Then after we discuss that for a bit, I change the premise…
What if, instead of being the doctor, you were the parent of a child with that illness, would you tell your child of 3? 9? 19?
Now, you are probably saying what does that have to do with investing in real estate?
Quite a bit actually, see it explores the concept of superior knowledge. As an investor you will have superior knowledge and experience over just about everyone you buy from and rent or sell to. Throw potential money investors in the mix and it gets even more murky.
The exercise above explores how you handle and deal with superior knowledge the other side has no way of knowing, unless you disclose it to them. That and other exercises like it are designed to draw the participant out of their comfort zone. Everyone claims high ethics, everyone claims to be honest, transparent and above board.
But, just what are the personal boundaries you set for yourself? You know, when no one is looking?
This is just dumb. There is nothing wrong with keeping information to yourself that gives you an advantage. Only a moron would give up their strength position if they werent forced to. Maybe that explains why you would.
It isn’t a question of whether you keep information to yourself or not. The purpose of that thought exercise is to help you figure out WHERE you draw that line.
For example, let’s say you are looking to buy a particular property and the owner says, “There is water in the crawlspace. I think there is a spring under there.” You crawl under there and sure enough there is water under there but it is coming from a blocked downspout that floods into the basement.
Do you tell them what you found or not?
See, many will say, “Heck no! Let them think it is a big problem that way I will get a better price.”
But, there is another way to approach it. If you tell them what you found, how far do you think that will go to helping build a relationship with the seller? When you do find a bigger item, how likely are they to question every aspect of it?
As I said, it is just a thought experiment.