Written by Mary Buffett
We’ve talked about the fact that there are two places to put our money that will stay ahead of inflation: The capital markets (stocks and bonds) and real estate. There are many differences, but there is a striking similarity, too. If you see it, you can use that information to your advantage.
What am I talking about? Let’s look at the real estate market first. In the early to mid 2000s, everybody wanted to buy real estate. It was easy to qualify for financing, prices were rising fast and there was a general feeling of complacency and wealth. Then, of course, we paid the piper. Easy credit and rising prices pushed real estate values far above their actual value. Inevitably, that rise stopped, then fell to more reasonable levels. Now, we find ourselves with a perplexing dilemma.
There is actually a shortage of supply of quality homes. Buyers, primarily investors at this point, can’t find enough good properties to buy. Maybe that’s why Warren told Becky Quick at CNBC that he’d “buy up a couple hundred thousand single family homes if it were practical to do so” late last February. Smart buyers see buys where others see fear. That’s one of the ways smart buyers get in first.
Now, let’s apply that lesson to the stock market. Investors got burned last year when they jumped in. Who knew that the Arab Spring would shake up the geopolitical situation and rattle the stock market? Who predicted that the Japanese tsunami would slow Asian production and demand? Now, with our focus squarely on the European sovereign debt crisis and China’s slowing growth, many are understandably hesitant to put their money in stocks. Not me.
I see an opportunity for my long term (at least ten years) money. Like real estate investors have been doing for the last year or so, savvy capital market investors are at the beginning stages of seriously snapping up bargains in quality stocks. Where some see panic, they see a sale. Like them, I’ve determined the companies that show long term value (Warren calls this the “durable competitive advantage”). I know the price I want, and I’m willing to wait until the next piece of bad news that causes short term investors to dump those shares and pull the price down to where I’ll grab it up.
It’s like getting a pair of Jimmy Choo shoes at 50% off.
Remember one of Warren’s best pieces of advice: “Be greedy when others are fearful and fearful when others are greedy.”
If we’re serious about keeping our money invested so that we can stay ahead of inflation, we have to be smart.
And the smart money is looking at some great buys in the stock market right now.
Next week, the second edition of my Newsletter will go out. I’ll give you invaluable information on where you can safely put your short term money AND get the highest yield.
Tell your family and friends to subscribe. They’ll thank you for it.
Until next time…
Mary Buffett
*Used with permission