I keep a picture of a rhinoceros in my office.
Source: Brad Thomas/Wide Moat Research
It’s not there for decoration, even if most people probably think it is. It’s actually a reminder of an article from a colleague, one I never want to forget.
Back when I was an editor at Forbes, one of my favorite colleagues, Paul Johnson, published a piece titled “The Rhino Principle.” And though it wasn’t an investment article, wasn’t written by an investment journalist, and didn’t even mention investments at all – not even once – it still impacted me as an investor.
Johnson described the rhinoceros as “not a particularly subtle or clever animal,” adding:
It’s the last of the antediluvian quadrupeds to carry a great weight of armor. And by all the rules of progressive design and the process of natural selection, the rhino ought to have been eliminated. But it hasn’t been.
Why not? Because the rhino is single-minded. When it perceives an object, it makes a decision – to charge. And it puts everything it’s got into that charge. When the charge is over, the object is either flattened or has gone a long way into cover, whereupon the rhino instantly resumes browsing.
Ever since reading those words, I’ve been captivated by the idea of investing like a rhino. And you know what I’ve found?
It works.
What It Means to Invest Like a Rhino
You don’t have to be the smartest animal in the zoo to succeed in the stock market. There are plenty of brilliant people who complicate their investing lives by overthinking everything.
You just have to be focused – and not on the daily headlines, which are carefully crafted to make you crazy. If you based your judgment calls on them, you’d find yourself constantly torn between elation and abject horror.
To avoid that exhausting back and forth, focus instead on identifying high-quality holdings and then sticking with them. Everything else is noise not worth your time or attention.
When you give in to those distractions, it rarely goes well.
Real estate investment trusts (“REITs”) learned that lesson the hard way during the Great Recession. After years and years of easy expansion, where they bought up whatever they wanted whenever they wanted, the party came to a sudden end.
Riddled with debt, many had to cut their dividends and rebuild their balance sheets from scratch. In short, they had to learn to focus on the fundamentals – a decision that paid off.
Those who maintained that focus even after conditions improved are now stronger, more disciplined, and more strategic than ever before. They’ve turned into the exact kind of quality stocks we’re always searching for here at Wide Moat Research.
This decade has seen so much real estate-related turmoil, starting with the 2020 shutdowns. And while the days of social distancing are behind us, the fallout continues in other ways.
There’s also the high-interest-rate environment we’ve experienced since 2022, which has weighed down public opinion about REITs’ ability to thrive. And with all due respect to Trump and his hard work, the general economic confusion and chaos of figuring out how to adapt to his tariffs and other attacks against the current global order have added yet another layer of difficulty.
Yet all throughout this, scores of REITs have expanded their holdings, improved their balance sheets, and increased their dividends anyway.
The List of Quality REITs Is Long
There are many REITs I could point to as examples of rhino-like focus, including:
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Realty Income (O)
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Agree Realty (ADC)
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VICI Properties (VICI)
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Equity LifeStyle Properties (ELS)
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Digital Realty (DLR)
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Regency Centers (REG)
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Public Storage (PSA)
Each one benefits from disciplined management teams focused on long-term value creation. And it’s clear they know what they’re doing.
Realty Income, for instance, has maneuvered itself into Europe, where it can bypass America’s higher interest rates. Agree Realty, meanwhile, has achieved investment-grade status, allowing it to borrow on much better terms.
And VICI has structured long-term leases with built-in growth and high-quality tenants – the kind that paid it on time. In full. Every month. Even during the worst of the shutdowns.
Or how about Equity LifeStyle Properties? It’s a great illustration of a niche leader who worked hard to build a powerful moat. This REIT focuses on manufactured housing and RV communities – both of which come with high barriers to entry, limited new supply, and incredibly stable demand.
The result is consistent occupancy that produces durable cash flows and long-term dividend growth.
Digital Realty, for its part, boasts global scale with mission-critical assets in the form of data centers. These facilitate automatic long-term relationships with both enterprise and hyperscale customers that produce long-term profits.
And Regency Centers focuses on high-quality, grocery-anchored shopping centers. Food is a far cry from the high-tech space, I know. But it’s even more critical, humbler though it may be.
This shows in its steady foot traffic, resilient rent collections, and consistent demand even when the larger economy slows.
Shifting over to Public Storage, we see yet another great example of the rhino mentality in action. As America’s largest self-storage operator, it’s got it all: brand recognition, pricing power, and operating efficiency that’s hard to beat.
Public Storage takes none of that for granted, though, maintaining a fortress balance sheet that gives it low-cost access to capital. As such, it can continue consolidating the highly fragmented property space it operates in while maintaining industry-leading margins.
Take it from someone who’s invested in REITs for over three decades now: These are not the same kinds of companies we saw 15 years ago. They’re stronger, smarter, and better positioned to handle whatever life throws at them.
They found their focus. And I pity the person, company, or economic tailwind that tries to get in their way.
Take Charge
In writing about rhinos, Paul Johnson wasn’t trying to promote perfection. He wanted to encourage intelligent action that can be continuously developed.
“The Rhino Principle may not produce the perfect” result, he told his readers. But it does produce a result, nonetheless. And once that’s accomplished, “it can be improved, polished, and made satisfactory.”
REITs took that mantra on in the depths of the Great Recession. And we investors can do the same even in our current state of chaos.
We don’t need to time exact market tops and bottoms. We don’t need to know everything that’s about to happen tomorrow, next week, or even next month.
What we do need is discipline. We need to realize that quality stocks can get us where we want to be. And then we need to stick with that conviction until it’s seen us all the way through.
Just like the rhino, I think we’ll find ourselves the last one standing when we do.
Take charge!
Source: Wide Moat Research/FAST Graphs
Regards,
Brad Thomas
Editor, Wide Moat Daily
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