Can you apply Warren Buffett’s style of stock market investment to property?
Warren Buffett is one of the most successful investors of all time and one of the richest men in the world with a net worth of $79 billion, most of which he intends giving away to good causes.
He leads a relatively simple life in Omaha, Nebraska and has lived in the same house since 1958.
Multi-billionaire Warren Buffett is a ‘value investor’ who invests in companies for long term though Berkshire Hathaway, which has given shareholders a remarkable average annual return 20% since 1965.
A single share in Berkshire now costs over £280,000.
He looks to buy companies at a price which gives him a ‘margin of safety’. In other words, he only buys at below-market value and pays no regard to the sticker price quoted on the stock market.
“Price is what you pay. Value is what you get.”
He does not jump in and out of the market. Instead the wise old ‘sage of Omaha’ patiently waits for the right deal. In fact, he has not bought very much for the last two years and got out of all of his airline investments during the last stock market fall.
He does not just sit there and wait twiddling his thumbs. He and his partner, Charlie Munger, spend their days researching companies and studying balance sheets.
Still active at 89, he attracts a huge following among share investors, including people like hedge fund manager Phil Town, and his shareholder meetings are more like a convention.
What type of companies does Warren Buffett buy?
Berkshire Hathaway is a holding company which owns substantial stakes in insurance companies, banks and credit card companies like Goldman Sachs, Bank of America, Wells Fargo and American Express, Visa, Mastercard, transport companies and perennial businesses like Kraft Heinz, Apple, Microsoft, Coca-Cola and McDonald’s.
Businesses which some investors might find boring but all have one thing in common.
Having a moat protect the business from the competition that would seek to attack and destroy the castle.
A moat can consist of a strong brand, like Apple, McDonald’s and Coca-Cola. It could also be that customers would find it extremely difficult to switch to a competitor or even have no other choice.
He buys strong companies with excellent earnings growth that he would be to hold for the next 10 years “even if the market shut down”.
He does not jump into the latest tech firm and will not be putting his cash into Bitcoin or cryptocurrencies, of which he once said, “In terms of cryptocurrencies, generally, I can say with almost certainty that they will come to a bad ending.”
Berkshire owns and controls many businesses but does not run them on a day-to-day basis. Their management style is hands off, as one of the reasons they invested in the company was that it had a great management team and board.
Can you apply this investment philosophy to property?
Of course you can!
All property investors want to buy property at below market value. However, very few take the time and trouble to keep researching the market in order to find that special deal.
“Never invest in a business you cannot understand.”
Warren always does his homework and knows his business inside out. He has spent years learning to become a great investor and studied under the likes of Ben Graham, the father of value investing who made a fortune during America’s great depression.
Finding the right property, in the right area at the right price gives an investor an excellent prospect of good long-term earnings – massive upside with very little downside.
“Buy a stock the way you would buy a house. Understand and like it such that you’d be content to own it in the absence of any market.”
Another aspect of Warren’s investment philosophy is to never lose money. His two golden rules are:
“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1”
This might sound strange for someone investing in a volatile ad sometimes risky stock market, but not if you apply his philosophy of buying companies with a margin of safety in the price and a strong moat.
Warren Buffett has come up with many brilliant quotes. Perhaps one of his most famous is:
“We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.”
Applying Buffett’s investment philosophy in the stock market or property investment will ensure you make money and build wealth for the longer term without risking the farm on every deal.
By Charles Kelly, Property Investor, Author of Yes, Money Can Buy You Happiness and creator of Money Tips Podcast.
There are more examples and practical steps to getting rich and being happy in my book, Yes, money can buy happiness, I cover the 3 R’s of Money Management, the Money B.E.L.I.E.F System and much more. Check it out on Amazon http://bit.ly/2MoneyBook.
If you’d like further information on how to survive the crisis and even quit the rat race, email me at Charles@CharlesKelly.net or send me a message through Facebook or my Money Tips Daily community. See more articles at www.moneytipsdaily.com