The 2024 Market Winds are Blowing...
Will You Capture Great Investment Returns?
There are many screamers in the marketplace saying we are about to hit a housing crash greater than the 2008 housing market debacle. If you’re paying attention, you have likely heard them. Being down in the trenches in the housing market I know nothing can be further from the truth, but how do you know you’re not out in a storm all alone? The answer lies in paying attention to the tried-and-true investors around the world.
Warren Buffett’s stellar investment track record over the past six decades stems from his unique philosophy of patience, emotional resilience, and opportunism.
Invest During Extremes
During market downturns, Buffett oversees his conglomerate Berkshire Hathaway’s capital allocation with reasoned calm. When investors panic, Buffett sees discounted opportunities. He has often waited for a stock to plunge 50%, which prompts Buffett to invest. His conviction pays off handsomely as stocks surged tenfold in subsequent years.
Today, Buffett’s approach remains unchanged – excellent companies can trade at tempting valuations in the throes of recession. Historical data supports Buffett’s method: markets eventually recover and reward those brave enough to invest during extremes.
Buffett considers prevailing interest rates significantly influential on asset values and investing attractiveness. His advice: assess your emotional tolerance, as inability to stomach volatility, means you may want to avoid stocks.
Seizing Opportunities Amidst the Chaos
Rather than timing markets perfectly, Buffett emphasizes seizing opportunities as they arise. During 2008’s financial crisis, Berkshire Hathaway invested $5 billion into Goldman Sachs, a bold but calculated move that paid off nicely.
Buffett likens owning stocks to owning a farm: commit for the long haul based on a company’s demonstrated economic potential. If you’ve purchased quality assets at agreeable prices, be patient in awaiting their value to mature.
Circle of Competence Counts
Stick to investments whose putative success you can reasonably evaluate. Buffett calls this one’s “circle of competence” - businesses whose futures are projectable fall within this circle. Venturing beyond one’s familiarity invites avoidable risk.
Don’t Let Your Finances Blow Off Course, Bet on what Berkshire’s Betting on... Housing!
Recently, Berkshire Hathaway has acquired over $800 million in stock across three leading home construction companies: DR Horton, Lennar, and NVR.
This vote of confidence comes amidst a hot housing market constrained by severely low inventory, locking many potential buyers out. Berkshire’s capital injection supports home builders in addressing this shortage.
Berkshire isn’t new to housing - its Clayton Properties Group already operates private home builders. But these public stock purchases represent a major foray into the space.
The move thrilled industry analysts who highlighted home builders’ stellar financial health. Berkshire’s investments will likely attract hitherto unengaged investors.
The Timing Is Key
Berkshire is capitalizing on the standoff between homeowners enjoying 2% mortgages and aspirational buyers facing 8% rates. Its support brokers confidence in home builders and housing overall. We are in a shortage of housing not seen since 1945. This shortage of physical real estate will not change even if interest rates were to go much higher. The solution to the problem is more building and the 8% interest rates are hampering this productivity. We’re likely to see interest rates unchanged in the near future as drops in interest rates will immediately cause home prices to rise once again. You may even see tailored government incentives created to cause new building of housing inventory to begin.
Warren Buffett advocates a long-term, opportunistic approach to quality assets trading at discounts. Berkshire Hathaway’s bold investments in home builders signals a promising outlook for U.S. housing amidst market instability. The strategy and its wisdom ring timeless. As the Latin phrase goes ‘carpe diem,’ seize the day! Now is the time to pay attention to opportunities in housing and in building homes. Much wealth will be created in the home building industry in 2024.
Thanks for reading our blog.
Joshua Dudgeon CEO & Founder, Real Estate Investment Results