Seriously, what if?
For anyone who studies investing, Warren Buffet is a household name.
Buffett’s investment company, Berkshire Hathaway, is considered one of the most respected in the entire world. A single share of the company is worth in excess of $300,000, and Berkshire’s investors tend to hold their shares for decades, if not for life.
According to most studies, Buffett is America’s 3rd wealthiest individual –– ahead of even Facebook’s Mark Zuckerberg. Buffett built his wealth not on a single company like Jeff Bezos (Amazon), Bill Gates (Microsoft) or even Zuckerberg, he built his wealth by investing in other’s companies.
In other words, he is a pretty good judge of investing.
Buffett: Your Realtor
So imagine if you went to the local real estate office, asked if an agent was available, and up walked a genteel looking elderly man (gold jacket, name tag, business cards with gold embossing, of course!) and introduced himself as Mr. Buffett.
What do you think he would have to say about the housing market right now?
Well, it is actually easy to imagine what he might say, considering he is one of the most quoted investors of all time.
When you read some of his most frequent sayings, you begin to notice several themes:
- Invest in quality
- Invest for the long haul
- Invest more heavily in down (or fearful) markets
And man do they ring true right now!
My Favorite Quotes
When you look at what Buffett is saying, he is not just talking about stocks, he is talking about a philosophy that applies to all investments –– including housing.
So (you can tell already where this is heading) here are some of my favorite Buffett quotes –– especially the ones that capture the current state of the world and (of course) housing.
“If you aren’t willing to own a stock (house) for ten years, don’t even think about owning it for ten minutes.”
Meaning –– ‘think long-term.’
Too often, we get wrapped up in trying to time the housing market –– don’t.
The only time where true price declines occurred was in the wake of 2008 –– due to a complete abandonment of underwriting standards. But over the following decade, once underwriting normalized, the market recovered and by 2016, most segments were back to where they were before the crisis.
Are we due for a small adjustment due to Coronavirus? Perhaps, but the fundamentals of housing were strong before CV showed up –– and that has not changed.
“Buy into a company (house) because you want to own it, not because you want the stock (price) to go up.”
Man, that one is sooooooo true.
Housing provides so much more than just a return:
- It provides shelter, stability, and peace of mind
- It allows access to education
- It creates a network of friends and peers
- It becomes a source of memories
- It grants an expression of self
- It offers control of your own destiny
Somewhere along the line, we stopped treating housing as, well, ‘housing,’ and started treating our homes as if they were 1,000 shares of IBM or Apple.
Simply put –– treating housing speculatively is not the correct strategy.
“Our favorite holding period is forever” and “Someone’s sitting in the shade today because someone planted a tree a long time ago”
Both are pretty self-explanatory –– another way to say think ‘long-term.’
‘The light can at any time go from green to red without pausing at yellow’
Markets shift –– they always have and always will –– and they are under no obligation to give you fair warning.
I think the lesson in this one is that quality decisions are far more immune to rapid shifts than decisions made due to market momentum.
“Price is what you pay. Value is what you get” and “It’s far better to buy a wonderful company (house) at a fair price than a fair company (house) at a wonderful price.”
Again, focus on quality.
“Risk comes from not knowing what you’re doing.”
I love that one, too.
- Just because you can cook, it doesn’t mean you should open a restaurant
- Just because you love IPAs, you shouldn’t open a brewery
- Just because you won your fantasy football league, you shouldn’t buy an NFL team
Too many buyers feel that real estate pros are unnecessary because access to Zillow, Quicken, and HGTV programming are satisfactory replacements –– it is unfortunate. Having access to information is one thing –– understanding it is quite another.
Times like these are when a pro’s advice matters most.
And continuing the theme …
“It’s only when the tide goes out that you discover who’s been swimming naked.
So many agents, lenders, builders, and flippers –– as well as buyers and sellers –– entered the market AFTER 2008, and have never lived through a market that is changing direction.
When markets rise, especially over prolonged periods, mistakes are hidden by appreciation. In up markets, leverage matters far less than reserves, bad operators can make good livings, and being active is mistaken for being strategic.
But when the direction changes –– especially when it changes abruptly as it just has –– every weakness, regardless of how small, becomes exposed.
If you are naked right now, the world is about to figure it out.
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful,” and “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble.”
And finally, the concept of being an opportunist.
When you make a series of good decisions over a prolonged period of time, the reward is being able to take advantage of opportunities when they appear.
Now –– I wouldn’t mistake that statement for saying that he tries to ‘time the market’ as much as he tries to take advantage of opportunities when they present themselves. No investor can truthfully claim that they see tops and bottoms, but the astute investor recognizes quality –– regardless of where they are in a market cycle.
Right now, there is a great deal of uncertainty, fear, and frustration in the market –– and that presents an opportunity for the shrewd investor.
So, what would Warren Buffett do?
Well, if you believe in his quotes, I think he would say something along the lines of –– ‘Well, since all investments should be viewed over the long term, and the market seems a bit fearful currently, it is a great time to purchase a great home. But that said, if your position is solid, a good home is always a good investment, regardless of market sentiment.’
No, I did not call him and ask him that, but I think he would concur.
I don’t want to be tone-deaf and simply say that it is a great time to buy a home for everyone –– because, for many, it isn’t. Jobs are still at risk, consumer behavior will change, lending is not as fluid as it was, and the tax bill that is coming for this debacle will be staggering.
But for those who are on solid footing, this is a pretty amazing opportunity.
And in case you wanted to know, the market is actually doing surprisingly well. Yes, it is not the spring we anticipated, but March and April of 2019 and March and April of 2020 are not as different one might think.
While new listings are down a bit, purchase activity is still extremely high, mortgage rates are still low and the real estate community is able to function, albeit in a more virtual way than before.
Don’t fall for the hype and let those without facts influence what you do –– make an informed decision.
As a really astute investor from Nebraska with about $80B once said, “You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right.“