Dani Lynn Robison compares an apartment building's steady 11% return to a luxury hotel's flashy 18-20% return, showing why the lower number wins when the hotel's occupancy crashes from 95% to 60% in a downturn. Higher returns mean nothing if you lose your principal.
If someone offers you a 20% return and someone else offers 11%, the 20% does sound better, but it might not be. Most people look at one number, the projected return, and the bigger number wins. But there's another number that matters just as much: how much could I lose? I'd rather have a boring 11% return on something people will always need, like an apartment building, than chase 18% on a hotel that empties out the second the economy slows down. Here's the math in real life. If a recession hits and my apartment building stays 95% full, I keep getting paid. But if the same recession hits a luxury hotel and it drops to 60% occupancy, I might not just miss my return, I could actually lose some of what I put in. The bigger number on paper can mean the bigger risk in real life. Boring and steady isn't exciting, but it lets you sleep at night and it tends to work.
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