Invest like Warren Buffet

Warren Buffet is arguably the greatest investor of all time.

He has a great track record of creating and maintaining his wealth through share investments, but many of his principles also apply to property investors.

So let’s look at some of Buffet’s investment principles and see how we can apply them to our property investing.

Adhere to a proven strategy

Buffet’s success has often been put down to his extraordinary patience and discipline, never deviating from his proven investment strategy even when faced with short term changes in the market.

strategy

This is a great lesson for property investors, as most don’t have a plan or adhere to a proven strategy.

In fact they spend more time planning where they’re going to holiday than they do planning their financial future.

If you don’t have an investment strategy to keep you focused, how can you hope to develop financial independence?

It’s too easy to get distracted by all the “opportunities” that keep cropping up.

Unfortunately many of these supposed opportunities don’t work out as expected.

Look at many of the investors who bought off the plan or in the next “hot spot”, only to see the value of their properties underperform.

Invest counter cyclically

Buffet is a renowned countercyclical investor, advising:

“We attempt to be fearful when others are greedy and to be greedy only when others are fearful.”cycle arrows-small

This is also the investment strategy of many successful property investors and has proven to be a winning formula for many who invested in property last year when many predicted that property prices would fall further.

So be skeptical of conventional wisdom – not because the crowd is always wrong but because the crowd is always late.

Sometimes it’s best to do nothing

A great quote from Warren Buffett is:

“The trick is, when there is nothing to do – do nothing.”

Yet many investors get itchy feet and want to do more, put another deal together or buy another property.

There are stages in the property cycle and times in your investment journey when it is best to sit back and wait for the right opportunities because wealth is the transfer of money from the impatient to the patient.

Specialise – don’t diversify

Buffet has adopted a focused investment philosophy investing the bulk of his funds in a few companies.goal image

However, most advisers suggest diversifying.

This is really just playing the game of investment not to lose, rather than playing the game to win and leads to average results.

On the other hand, successful investors specialise.

They become an expert in one area or niche and reproduce the same thing over and over again getting great results.

Invest for value

Buffett is a value investor who says:house

“It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

And it’s the same with property.

You make your money when you buy your property but not by buying a bargain.

You lock in your profits by buying the “right property” – one that will outperform the averages in the long term because of its scarcity or the potential to add value.

In today’s strong property market don’t look for a bargain. Remember, the price you pay for a property isn’t the same as the value you get. Successful investors know the difference.

Invest for the long term

Buffett admits he can’t predict which way the markets will move in the short term and he is quite certain no one else can either.

So instead, he takes a long-term view of the market saying if you don’t feel comfortable owning a stock for 10 years, you shouldn’t own it for 10 minutes.

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Similarly those who have created wealth out of property took a long-term view.

This doesn’t mean buy and forget – you should regularly reviewing your property portfolio.

When was the last time you checked to make sure you were getting the best rents or that your mortgage was appropriate for the current times?

Maybe it’s time to refinance against your increased equity and use the funds to buy further properties?

And sometimes it is appropriate to consider selling an underperforming property to enable you to buy a better investment.

Don’t invest in anything you don’t understand

feesDuring the boom years investors’ hunger for returns took them into exotic terrain, whether they realized it or not.

Property promoters often promised large profits using opaque schemes, and the same is starting to happen again as they new property cycle rolls on.

Warren Buffett never invests in anything he doesn’t understand – nor should you.

Manage your risks

Many investors don’t fully understand the risks associated with property investment and therefore don’t manage them correctly.

One common error is not having sufficient financial buffers to see them through from one property cycle to the next.risk

Smart investors have financial buffers in their lines of credit or offset account to not only cover their negative gearing but to see them through the down times like we experienced in the last few years.

They don’t only buy properties; they but themselves time.

Another way smart investors minimize risk is to buy their properties in the correct ownership structures to legally minimise their tax and protect their assets.

A final lesson from the master is that bad times will come and go with surprising frequency over our investing lifetimes, but if we have a plan and stay focused on sound financial strategies, we can gain financial independence through prudent investing.

Here’s how you can invest like a professional…

If you want to take advantage of the opportunities our growing property markets will offer you now is a good time to consider your options.

property investment adviceIf you’re looking for independent advice, no one can help you quite like the independent property investment strategists at Metropole.

Remember the multi award winning team of property investment strategists at Metropole have no properties to sell, so their advice is unbiased.

Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level. Please click here to organise a time for a chat. Or call us on 1300 20 30 30.

When you attend our offices in Melbourne, Sydney or Brisbane you will receive a free copy of my latest 2 x DVD program Building Wealth through Property Investment in the new Economy valued at $49.

 



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About

Michael is a director of Metropole Property Strategists who create wealth for their clients through independent, unbiased property advice and advocacy. He's been once agin been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


'Invest like Warren Buffet' have 2 comments

  1. March 30, 2014 @ 10:50 pm Nigel

    Warren Buffet advocates investing for yield not capital growth. Warren considers that looking for growth is speculating not investing. Warren is also against leverage/borrowing. Warren does not invest in property/real estate. I believe that Warren’s advice is great for stocks but not relevant for Australian property. There are plenty of others who know how to invest in Australian property, I am sure that we can learn more about Australian property investment from Michael Yardney than Warren Buffet. I guess the article had good points though.

    Reply

    • March 31, 2014 @ 7:06 am Michael Yardney

      Thanks for the kind words Nigel

      Remember Buffett is basically a share investor

      Reply


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