One week ago, we sparked debate on Reddit (and elsewhere) with our blog post ‘Don’t listen to Warren Buffett.’ We were talking about the iconic investor’s public views on portfolio diversification. He’s spoken out against it, many times; in contrast, we believe that it’s the best protection from the proven volatility of the financial markets.
Buffett is called “the oracle” for a reason, as acknowledged in the very premise of last week’s post: unless you, too, are an oracle, you’re better off mitigating risk by spreading your investments across asset classes. And that includes real estate — arguably the best hedge there is against the S&P 500.
Over the last week, we’ve read the responses to our first ‘Buffett post,’ while continuing our research on diversification, the value of real estate investing, and the investment strategy of Mr. Buffett himself. We read his latest investor letter. We looked up his holdings. And here’s what we discovered: Even Buffett doesn’t listen to Buffett.
Warren Buffett is diversified, in spite of his warnings against the popular investing practice. His personal and professional investments range from bond insurance to value-priced party supplies, and everything in between — including real estate.
So, while we re-espouse our first recommendation to ignore Buffett’s advice on diversification, we’d like to now include an addendum…
Don’t listen to Warren Buffett. Do what Warren Buffett does.
In his 2016 investor letter, released February 25, 2017, Buffett calls out his HomeServices of America (HSA) business, informing investors they can expect more acquisitions in 2017. A subsidiary of Berkshire Hathaway Energy (?), HSA already owns 38 realty companies, with more than 29,000 agents in 28 states. The company also owns real estate brokerages, mortgage companies, settlement service providers, insurance companies and corporate relocation businesses and is the majority owner of Real Living Real Estate and the Prudential Real Estate franchise network. HSA realtors participated in 244,000 sides, totaling $86 billion in volume, last year alone.
“We like… the real estate business and expect to acquire many Realtors and franchisees during the next decade.” — Warren Buffett, 2016 investor letter
In his 2014 letter, Buffett even offered advice on achieving success in real estate investing:
- Invest in undervalued real estate
- Think in terms of income, not appreciation
- Focus on underutilized properties
- Use partnerships to fill gaps in your expertise
- Prioritize the macro over the micro view
While we can’t all acquire real estate brokerages and mortgage companies to enhance our position in real estate, we can employ a billionaire businessman’s real estate investment strategy on a smaller scale.
To learn more about investing in income-producing, undervalued real estate, or the types of partnerships that would most benefit you in your real estate investing journey, request your free, private consultation with Pioneer Homes today.