At age 84, Warren Buffett is the fourth wealthiest person in the world. With a current net worth of $68.6 billion, he is considered by many to be the most successful investor of the twentieth century. Buffett grew his fortune using his keen ability to consistently find and purchase underpriced assets. As property investors, we would do well to follow his wisdom.
I must confess that I’ve taken inspiration for this post from Keith Cunningham, who spoke at our recent Millionaire Mega Conference in Melbourne. He referenced two Buffett quotes in his keynote message.
When I heard them, I felt compelled to stop and ponder their meaning. There was a depth of wisdom to discern, similar to hearing an ancient proverb. In addition to Keith’s two Buffett quotes, I managed to dig up two more myself that I felt were worth sharing.
Here are four Warren Buffet quotes that every investor should live by:
1. “Only When The Tide Goes Out Do You Discover Who’s Been Swimming Naked.”
This quote was taken from his 2001 Berkshire Hathaway Chairman’s Letter.
Leading up to making this statement, he was talking about the importance of applying a stress test to one’s investment portfolio and to contemplate what could happen to one’s holdings if there was an economic shift toward a more unfavorable environment.
In a bull market when the tide is high, almost everyone will make money in real estate. As long as investors buy into the market at the right time, the wave of growth does all of the work. Even if you make mistakes, or lack skill as an investor, this can be covered up by the strength of the market. During these favourable economic times, the true quality of one’s investments is unclear.
But when the tide goes back out, all will be revealed. Those who are too highly leveraged, who have borrowed and re-borrowed, may get caught with their pants down.
Are you swimming naked? How would a 20 or 30 percent drop in property values impact your personal cash flow?
2, “Someone Is Sitting In The Shade Today Because Someone Planted A Tree A Long Time Ago.”
Unless you venture too far into the Australian Outback, the sun is probably not going to kill you. But without some shade, the sun sure can make life a lot more uncomfortable.
Why do some people have a more shady retirement than others? Quite simply, they had a long-term vision to recognise their future need for shade.
They planted a tree a long time ago that would be there when they needed it. That tree seemed pretty small and useless for a while, but eventually, it cast a very large shadow under which they could find protection.
I occasionally have the privilege of mentoring investors in their early to mid-20’s who are already planning for retirement by age 45. But whether you’re 25, 45 or 55, we’re all barrelling toward the day that we will need to live off the income of our assets. Your only hope of avoiding the need to rely upon family or the government is to begin dreaming now and developing a vision for what your financial life will look like in 20 or 40 years.
What are your long-term financial goals? How much income will you need to live well in your retirement? How much will your property portfolio need to be worth to produce the income that you need?
3. “You Can’t Produce A Baby In One Month By Getting Nine Women Pregnant.”
Making babies is really fun and exciting. Producing babies? Not so much. Of course there is that initial phase of joy when you’ve just learned that you’re having a child.
But then there’s the waiting, the morning sickness, the weird appetite, the stretch marks, the sleepless nights, the contractions, the screaming and the pushing.
The most valuable things in life only come through an investment of time and hard work. Perhaps this is why so few people seem to possess valuable things. Human nature tends to be impatient and lazy.
Impatient and lazy people try to take shortcuts. They are happy to keep doing the fun and exciting things, but not the waiting and the hard work. But as Buffett teaches us, some destinations have no short cut.
Financial freedom through property investing is one of those destinations. Buying real estate is one of the exhilarating parts of investing. Some people really get off on the rush, but wealth is not created when we buy. Wealth grows over time as we wisely manage smart purchases.
There may be some sleepless nights and a bit of pain along the way. You might even feel like throwing up at times, but if you stay the course with a proven system and plan, you’ll achieve your goals.
How’s your character? Are you patient and willing to work? Do you have skill and a proven system?
4. “Never Ask A Barber If You Need A Haircut.”
I’ve noticed that whenever I get my hair cut, I have to be very explicit about how short I want my hair.
My barber seems to want to keep it longer. Perhaps that’s because the shorter he cuts my hair, the longer it could be before I need to come back to see him. The more frequently he can get me in his chair, the more money he will make. In short, my barber is incentivised by my more frequent need for a haircut.
One of the most fatal property investing mistakes I see is people relying too heavily on the advice of property “professionals.”
Rather than learning how to conduct their own due diligence, these naïve investors blindly trust the assertions of agents or property salespeople, and buy because “they said I should.”
When dealing with those in the property industry, we must be mindful of how they are incentivised. Agents receive a commission from the seller upon the sale of a property, so they are not independently representing you as the buyer.
Salespeople who work for builders often also get paid a commission. Mortgage brokers may be incentivised to offer one loan product over another. Even financial planners form relationships with builders and developers to market properties to their clients in exchange for a “referral fee.”
While these can be valuable relationships to form, and commissions are a reality of the industry, we must always take responsibility for our purchasing decisions. We must be prudent.
In Steve McKnight Property Apprenticeship program, we help investors establish their long-term financial goals and develop a strategy that will take them there using property.
Rather than forcing them to rely upon the opinions of others, we empower investors with the skills and competence to find deals on their own that match their profit objectives.
To learn more about our training programs, visit www.propertyinvesting.com/store/property-apprentice.