09 Jun How would Warren Buffet invest in property? – Michael Yardney
There is an old saying that success leaves clues, and there’s no greater successful person in the world when it comes to investing than Warren Buffett. He’s 84-years-old, he’s consistently ranked amongst the world’s richest people, so let’s have a hypothetical look. If Warren Buffett were to become involved in investment in Australian property, what would he do? How would he go about it?
Michael Yardney, from Metropole Property Strategists, thinks he knows and he tells us today. Success leaves clues and there will be lots in this chat with Michael.
Kevin: There is an old saying that success leaves clues, and there’s no greater successful person in the world when it comes to investing than Warren Buffett. He’s 84-years-old, he’s consistently ranked amongst the world’s richest people, so let’s have a hypothetical look. If Warren Buffett were to become involved in investment in Australian property, what would he do? How would he go about it?
Interesting question. I’m going to pose that of Michael Yardney from Metropole Property Strategists. Michael, I know this must be something you’ve thought about, as well.
Michael: It’s a hypothetical question, and Warren Buffett clearly is one of my mentors. Nobody I’ve met personally, but I’ve followed his systems, I’ve followed his strategies. I think he would invest a little bit like I do. I know that’s being vain, but I’d like to explain why, Kevin.
Kevin: Please do.
Michael: Kevin, he has his own investment philosophy, which is very clearly defined. He tells people there’s no secret. He has a set of strict selection criteria:
- Rather than investing in the latest fad, he invests in tried-and-proven industries. That’s why he didn’t get burned in the tech wreck when everyone else did in the 2000s.
- Warren Buffett understands the importance of timing and counter-cyclical investing. He knows that patience is important.
- He doesn’t buy cheap companies; he buys great companies with strong values and strong brands.
- He buys companies cheaply, below their intrinsic value. He bought Gillette at a really good price. He bought Coca-Cola. He’s buying good brands, blue-chip properties and blue-chip companies.
- He buys companies with a strong upside potential.
- He invests for the long term. Kevin, he says something along the lines of if you aren’t willing to own a stock for ten years, don’t even think about owning it for ten minutes.
Can you see some common threads there, Kevin?
Kevin: Yes, I can. In fact, I’ve listened to you on a number of occasions talk about your strategy, so let’s apply what his investment philosophy is to Australian property.
Michael: This is, again, a hypothetical exercise, as you say, but I’m guessing what he’d do if he was to buy properties in Australia is he’s likely to look for five things:
- He’d buy properties in areas with strong capital growth prospects.
- He’d buy properties that he can buy for less than true market value, just like he does with shares, because he only wants to buy with a margin of safety there.
- He’d buy properties that are unique, that are special, that are different, something that creates a level of scarcity. You’ve heard me talk about the concept of property with a twist. Just like Buffett bought Coca-Cola because its brand makes it difficult for competitors to compete, you want to have something that makes your property stand out.
- Kevin, I don’t think he’d chase the latest hot spot. He’s not into fads.
- He’d also buy properties to hold in the long term and not consider trading or flipping.
Interestingly, there are some similarities between what Warren Buffett would probably do and what a lot of the successful people you have on Real Estate Talk do, Kevin.
Kevin: Yes. One of the things that stands out, for me, Michael, is that he doesn’t take a short-term view to it. You talked there about not flipping properties quickly, not looking for the latest hot spots, so therefore, not chasing the latest fads.
Michael: Right. Now, he also is a counter-cyclical investor, and that’s definitely one of my philosophies also. But once you become a substantial investor like he does, he doesn’t only wait for the counter-cyclical opportunities; what he actually waits for is the right opportunity, realizing that he makes his money not by buying a property or a share cheaply, but by buying the right ones.
Some really good lessons there for property investors, Kevin.
Kevin: One underlying lesson, Michael, is that you need to develop a strategy, and then you need to stick with it.
Michael: Can I finish with a good quote from Warren Buffett?
Michael: He said, “I’m a better investor because I’m a businessman, and a better businessman because I’m an investor.” I think that shows that a strategic approach that property investors should take – as I’ve often said – is treat your properties like a business.
Kevin: Indeed. Wonderful talking to you, Michael.
Michael Yardney from Metropole Property Strategists, a well-known author, of course, and you can follow him at his blog site, which is PropertyUpdate.com.au.
Michael, thank you so much for your time.
Michael: My pleasure, Kevin.