Buffett: Real Estate Deals Offer Stock Investing Lessons

Warren Buffett will release his 2013 year-end letter to Berkshire Hathaway shareholders tomorrow, but the Oracle of Omaha has already released a particularly intriguing excerpt in Fortune magazine focusing on real estate. 

Buffett details two relatively small but profitable real estate transactions he made years ago — one being the purchase of a Nebraska farm and the other the purchase of an office building near New York University — and examines the lessons they provide for equity investors. The lessons largely focus on the idea of treating an investment as a business, or piece of one, and not getting swayed by day to day headlines. “With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations,” Buffett says. “Games are won by players who focus on the playing field — not by those whose eyes are glued to the scoreboard. If you can enjoy Saturdays and Sundays without looking at stock prices, give it a try on weekdays.”

Focusing on macroeconomic predictions is also trouble, Buffett adds. “My two purchases were made in 1986 and 1993,” he says. “What the economy, interest rates, or the stock market might do in the years immediately following — 1987 and 1994 — was of no importance to me in determining the success of those investments. I can’t remember what the headlines or pundits were saying at the time. Whatever the chatter, corn would keep growing in Nebraska and students would flock to NYU.”

Buffett says day to day stock fluctuations should be a benefit to investors, allowing them to take advantage of mispricings. But “those people who can sit quietly for decades when they own a farm or apartment house too often become frenetic when they are exposed to a stream of stock quotations and accompanying commentators delivering an implied message of ‘Don’t just sit there — do something.’ For these investors, liquidity is transformed from the unqualified benefit it should be to a curse.”

Buffett also discusses the benefits of individual investors using broad market index funds, and the importance of regular investing and staying the course through tough times.

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