Open Your Mind... And Dramatically Improve Your Retirement

By Whitney Tilson

Thursday, June 18, 2020
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Note from Whitney: As I noted yesterday, we’re running a special series of essays from my friend Steve Sjuggerud while I’m climbing The Nose of El Capitan in Yosemite National Park (my latest pictures are at the end of this e-mail).

On June 24, Steve – a legendary real estate investor with a long track record of making many times his money – is hosting a special event where, for the first time ever, he’s going public with all of his real estate secrets.

To get Empire Financial Research readers up to speed, Steve has graciously agreed to share some of his recent thoughts on the real estate market, which he shared last month with his True Wealth subscribers. I hope you learn something… I know I did!


“Steve, asset prices are just too high…”

“Relative to what?” I reply.

“Huh?” they answer…

I end up having this conversation with someone almost every other day. Yes, even after the recent fall in stocks. I guess friends, family, and business colleagues just expect me to agree with them…

It’s like they’re saying, “Nice day, eh?” But I don’t reply with, “Yes, it is…” Instead I say, “Relative to what?” It’s not what they were expecting.

Here’s the thing…

Investing is all relative… You and I make choices with our money every day, based on relative value.

Making any investment means picking one thing over another. You buy this house because you think it’s 20% cheaper than that one. Or you move money from one savings account to another, because it pays more interest.

Every investment decision you make is based on relative value… even if you don’t think about it at the time.

If you can open your mind to this simple point – that investing is relative – then you have a chance to make a lot of money in the next few years. You have a chance to far outperform your peers and set yourself up for a retirement beyond your dreams.

You might nod your head knowingly. You might even say, “That’s obvious, Steve.” But are you really doing it?

Just nodding your head and agreeing with me ain’t enough. You have to act. And you have to act right now… today. Because if you agree with me, you will see the opportunities in front of us right now are extraordinary.

Relative value is a simple principle. But it’s powerful. This month, our goal is to commit to really understanding it… and internalizing it.

If you can do that, you truly can end up dramatically ahead on your retirement goals in just a couple years. But you have to ACT!

Relative Value Is at the Core of All Investing

The choices we make with our money are based on relative value. We do it every single day…

Do you buy a car from General Motors, or a Toyota? Do you buy the store brand in the grocery aisle and save a few bucks, or do you buy the name brand that you know is good?

You make specific decisions with your money based on relative value all the time. And it’s no different in investing…

“Can I afford a $500,000 mortgage right now?” you might ask.

How would you decide? You’d likely ask yourself, “What’s my monthly mortgage payment right now relative to my income?”

You make every financial decision relative to something else.

The housing example is a good place for us to start getting to the bottom of today’s secret…

Let’s say you’re looking at a $500,000 house. You’re worried, because the price of this particular house is the highest it has ever been. You really like the house. But you are afraid “asset prices are just too high.”

Should you buy it? To decide, we should look at one critical factor here – interest rates.

Today, almost unbelievably, 30-year mortgage rates are at record lows – near 3% interest. So your monthly payment on a $500,000 mortgage at 3% interest is just $2,100 (not including property taxes and insurance).

Thanks to record low rates, your mortgage costs you just $2,100 a month.

But what if mortgage rates were at record highs today, not record lows? Let’s take a look…

In October of 1981, mortgage rates hit record highs – nearly 19%. At a 19% rate, you’d pay nearly $8,000 a month on your $500,000 loan.

$8,000 versus $2,000 – what a difference!

So… is that $500,000 house worth buying right now?

Is that asset priced too high… or not?

When interest rates are 19%, that house is probably priced too high. Your mortgage would cost you $8,000 a month.

But when interest rates are at record lows, like they are now, you can probably afford that house… Its monthly payment is only $2,100.

The important point here is… the price of the asset – the house – is unchanged. It’s the relative value of that asset that has completely changed – its value relative to interest rates.

Let’s look at this another way…

Say you could only spend $2,100 a month on your mortgage… but interest rates were 19%. How much house could you buy on $2,100 a month when interest rates are 19%?

The numbers might shock you:

At 3% interest, you can buy a $500,000 house with a $2,100 monthly payment.

At 19% interest, you can buy a $125,000 house with a $2,100 monthly payment.

You can buy four times as much house when interest rates are at record lows versus when interest rates are at record highs.

That’s an incredible spread. And it gives us a powerful insight into a main driver of the housing market… affordability.

Housing affordability is simply the “cost” of a home relative to your income. It’s not the price of the home that matters – it’s the monthly payment.

The payment part is key. Because as we just covered, that includes interest rates. And low interest rates make investments like houses more affordable.

By looking at incomes, home prices, and interest rates, the National Association of Realtors (“NAR”) calculates a housing affordability figure.

This measure hit 167 in the latest report from the NAR. That means someone with the typical income can afford 167% of the typical home price in America. That’s last month’s data, though…

Based on a mortgage rate of 3%, the affordability index will jump to 173 in June. So thanks to record-low mortgage rates, housing is the most affordable it has ever been in our lifetimes, except for the bottom of the real estate bust. I shared this chart yesterday, but it’s worth taking another look…

This is an incredible tailwind for the housing market. Interest rates are down dramatically, and that makes housing cheap… even though prices haven’t fallen.

The scenario playing out in the housing market is crazy. And with relative value tilted dramatically in housing’s favor, we’ve got a no-brainer opportunity to profit. Tomorrow, I’ll share exactly how to take advantage in your brokerage account…

Good investing,

Steve Sjuggerud

Note from Whitney: This may come as a surprise for those of you who know Steve from his work on stocks… but the majority of his personal investable net worth is actually outside of the stock market.

And right now, Steve says the time is right for you to do the same. That’s why – at 8 p.m. Eastern time on Wednesday, June 24 – he’s hosting a special event where he’ll show you the process he’s personally used to make millions in real estate. He’ll also walk you through his own investments… including homes he bought and flipped… tax certificates that paid him 18%… raw timberland… and everything in between.

The event is free to attend, but you must reserve a seat ahead of time. Save your spot here.


My guide and I had a good first day on The Nose of El Capitan yesterday. After 11 hours of climbing, we made it to the top of Dolt Tower, where we spent the first of three nights on the wall.

Here are pics from the start and end of the day…

And here’s one from this morning:

Whitney Tilson

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About Whitney Tilson

Prior to creating Empire Financial Research, Whitney Tilson founded and ran Kase Capital Management, which managed three value-oriented hedge funds and two mutual funds. Starting out of his bedroom with only $1 million, Tilson grew assets under management to nearly $200 million.

Tilson graduated magna cum laude from Harvard College with a bachelor’s degree in government in 1989. After college, he helped Wendy Kopp launch Teach for America and then spent two years as a consultant at the Boston Consulting Group. He earned his MBA from Harvard Business School in 1994, where he graduated in the top 5% of his class and was named a Baker Scholar.

Click here for the full bio.