Los Angeles Luxury Homes
A recent article on Fortune Magazine reprints an essay by billionaire investment guru Warren Buffet. In the essay Buffet discusses his strategy for investing in common stocks, but the examples he uses are two small, nonstock investments he made several years ago – the purchase of a 400-acre farm in Nebraska and the purchase of a retail property near New York University.
These properties were purchased in 1987 and 1994 respectively – both years when the real estate market in the United States was in a state of uncertainty. While Buffet chose these two examples to illustrate the relative unimportance of valuation versus yield and return on investment over the long haul when investing, Los Angeles real estate investors can learn a lot from what Buffet calls his “fundamentals of investing” – especially given the current state of the Los Angeles real estate market.
Buffet’s fundamentals of investing are as follows:
- You don’t need to be an expert in order to achieve satisfactory investment returns. But if you aren’t, you must recognize your limitations and follow a course certain to work reasonably well. Keep things simple and don’t swing for the fences. When promised quick profits, respond with a quick “no.”
- Focus on the future productivity of the asset you are considering. If you don’t feel comfortable making a rough estimate of the asset’s future earnings, just forget it and move on. No one has the ability to evaluate every investment possibility. But omniscience isn’t necessary; you only need to understand the actions you undertake.
- If you instead focus on the prospective price change of a contemplated purchase, you are speculating. There is nothing improper about that. I know, however, that I am unable to speculate successfully, and I am skeptical of those who claim sustained success at doing so. Half of all coin-flippers will win their first toss; none of those winners has an expectation of profit if he continues to play the game. And the fact that a given asset has appreciated in the recent past is never a reason to buy it.
- With my two small investments, I thought only of what the properties would produce and cared not at all about their daily valuations. 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.
- Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. (When I hear TV commentators glibly opine on what the market will do next, I am reminded of Mickey Mantle’s scathing comment: “You don’t know how easy this game is until you get into that broadcasting booth.”)
Buffet’s advice regarding choosing investments is especially pertinent in today’s real estate investment market. While we are in the midst of a recovery, home values in Los Angeles are stable and steadily climbing in prime areas such as Beverly Hills, Bel Air, West Hollywood, Hollywood Hills, Sunset Strip, Los Feliz and Studio City while the rest of the United States continue to fluctuate, and as an investor, focusing on valuations and trying to predict a market in flux will drive you mad.
Instead, invest in Los Angeles real estate because it is one of the best rental markets in the world and will continue to be so. Forget about the projected value of a property. Focus instead on the income Los Angeles luxury homes can produce in the years to come.
To read Warren Buffet’s essay in its entirety, click here.
Susan Andrews | Estates Director
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Susan Andrews is your ultimate real estate source for Los Angeles, California and surrounding communities.
Photo courtesy of Fortune Magazine online.