The key to Warren Buffet’s tremendous success is being true to his core principles and developing specific strategies that evolve over time, plus maneuver and adapt to the ever-changing market conditions, regardless of industry or investment type. He is a true artisan of investing.
1 – ADHERE to a proven strategy
Be extraordinarily patience and disciplined, and never deviate from your proven investment strategy, even when faced with short-term changes in the market.
Most property investors fail to have a plan or adhere to a proven strategy before starting to invest in real estate. The truth is that real estate isn’t as glamorous as you may think and if you don’t have a keen eye for finances it can be quite slow moving.
If you don't have an investment strategy to keep you focused, how can you hope to develop financial independence?
Having laser focus and ignoring the emotion of what's ‘HOT’ or the latest market trends can be hard due to feeling like you have missed an opportunity.
Determining an investment strategy and sticking to it is key.
2 – Invest WISELY
One of Warren Buffet’s most popular quotes: "Be fearful when others are greedy and greedy when others are fearful." This statement has never been truer, especially in the property market.
If the crowd is talking about a new ‘hot or up-and-coming’ suburb to invest in, chances are you are too late, not because the crowd is wrong but because the talk happens afterwards.
3 – SPECIALISE - don't spread too thin
Buffet has a focused investment philosophy investing the bulk of his funds in a handful of companies. Most advisers suggest diversifying as a way to mitigate risk, while this is true, (depending on the investment type) you will only ever see average results.
‘High risk – high return. Safe risk – safe return. Low risk – low return.’
Successful investors become an expert in one area or niche and develop winning combinations over and over again, consistently improving for better results.
To be in control develop YOUR own winning formula or strategy.
4 – INVEST for the long term
Buffett admits he can't predict which way the markets will move in the short term and he's 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.
Similarly, the same is true for property. Although it might be a long term investment it doesn't mean you shouldn’t regularly review your property portfolio and look for ways to improve your returns.
When was the last time you checked that your financial modelling is till suitable?
5 – Sometimes it's best to do NOTHING
Another great quote from Warren Buffett: "The trick is, when there's nothing to do, do nothing."
Many investors get itchy feet and want to do more. As mentioned earlier property investing can be a slow process. For example: capital growth percentages are talked about in years not days.
In everything we all do we need to apply ‘time and place’, especially in the property investing cycle and there will be times in your investment journey when it is best to do nothing – just wait, be patient.
6 - Don't invest in ANYTHING you don't understand
This doesn’t mean you have to be an expert in all areas of property but educating yourself and understanding at least the basics will ensure you don’t come across any unwanted surprises!
Warren Buffett never invests in anything he doesn't understand - nor should you.
7 – Invest in VALUE
Buffett is a value investor who says: "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.
Property is largely value investing and being able to focus on the outcome and viewing the property long term will often lead to you seeing value where others can’t.
A property that out-performs the averages long term because of its scarcity or the potential to add value will pay dividends.
Remember, the price you pay for a property isn't the same as the value you get. Successful investors know the difference.
8 – MANAGE your risks
Understanding the risks associated with property investing can be quite daunting but thankfully there are ways to manage these or mitigate them.
The most common errors:
- Insufficient financial buffers to see through tough times
- Inadequate insurance to cover any unforeseen circumstances.
- Incorrect ownership structures before purchasing to legally minimise tax and asset protect
The bad times will come as the market goes through its normal ‘up-and-down’ cycle but the smart investors will ensure they have all the above in place to see them outlast the downs and move into the next up cycle.
Buffet understands that bad times will come and go with surprising frequency over our investing lifetimes, however it is within these tough times that you can capitalise on the market to make some of your best purchases but only if you are in a position to do so – be prepared.