Mr. Buffett Shares Some Wisdom

The article below appeared in the New York Times last week, and it's a great message to those of us who are feeling some real uncertainty in our live.

Buy American. I Am.
By WARREN E. BUFFETT

THE financial world is a mess, both in the United States and abroad. Its problems, moreover, have been leaking into the general economy, and the leaks are now turning into a gusher. In the near term, unemployment will rise, business activity will falter and headlines will continue to be scary.

So ... I’ve been buying American stocks. This is my personal account I’m talking about, in which I previously owned nothing but United States government bonds. (This description leaves aside my Berkshire Hathaway holdings, which are all committed to philanthropy.) If prices keep looking attractive, my non-Berkshire net worth will soon be 100 percent in United States equities.

Why?

A simple rule dictates my buying: Be fearful when others are greedy, and be greedy when others are fearful. And most certainly, fear is now widespread, gripping even seasoned investors. To be sure, investors are right to be wary of highly leveraged entities or businesses in weak competitive positions. But fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.

Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will be higher or lower a month — or a year — from now. What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So if you wait for the robins, spring will be over.

A little history here: During the Depression, the Dow hit its low, 41, on July 8, 1932. Economic conditions, though, kept deteriorating until Franklin D. Roosevelt took office in March 1933. By that time, the market had already advanced 30 percent. Or think back to the early days of World War II, when things were going badly for the United States in Europe and the Pacific. The market hit bottom in April 1942, well before Allied fortunes turned. Again, in the early 1980s, the time to buy stocks was when inflation raged and the economy was in the tank. In short, bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.

Over the long term, the stock market news will be good. In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

You might think it would have been impossible for an investor to lose money during a century marked by such an extraordinary gain. But some investors did. The hapless ones bought stocks only when they felt comfort in doing so and then proceeded to sell when the headlines made them queasy.

Today people who hold cash equivalents feel comfortable. They shouldn’t. They have opted for a terrible long-term asset, one that pays virtually nothing and is certain to depreciate in value. Indeed, the policies that government will follow in its efforts to alleviate the current crisis will probably prove inflationary and therefore accelerate declines in the real value of cash accounts.

Equities will almost certainly outperform cash over the next decade, probably by a substantial degree. Those investors who cling now to cash are betting they can efficiently time their move away from it later. In waiting for the comfort of good news, they are ignoring Wayne Gretzky’s advice: “I skate to where the puck is going to be, not to where it has been.”

I don’t like to opine on the stock market, and again I emphasize that I have no idea what the market will do in the short term. Nevertheless, I’ll follow the lead of a restaurant that opened in an empty bank building and then advertised: “Put your mouth where your money was.” Today my money and my mouth both say equities.

Warren E. Buffett is the chief executive of Berkshire Hathaway, a diversified holding company.

Video of 324 South Laurel, Oregon Hill

Here's a video of a great house in Richmond's Oregon Hill. Keep an eye out for more videos available here and on my YouTube channel. (See below the video for directions.)




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Buy a Home at VCU for Students

"Are townhouses/duplexes in the VCU area a good investment? Is there anything in the 200-250K price range?"

Yes, there are an abundance of Townhouses/duplexes near VCU, many falling into that price range.

As far a good investment, that obviously depends on the property and location; but more importantly your need for the property (kid at VCU, tax exchange,etc.), your financial resources for the purchase (money for down payment) and your willingness and ability to manage and maintain the property.

Other factors to look for is if the property has a tax abatement with the City of Richmond or if you are planning a renovation, the ability to qualify for State and Federal tax credits. Many of our clients have done well with these properties as rentals and investments. Some other investors hit bumps along the road including allowing their children to "trash" the property or having a child fail out.

Use caution with the market slow down and choose wisely. One, thing that is for sure is VCU is here to stay and its growth has been phenomenal.

Looking in Church Hill

"What are the good/bad areas to buy in the Church Hill area? ($250-500K)"

When trying to decide where to live in Church Hill, park your car and take a walk and find out what feels good to you. If you like it in the day, check it out after work (is there parking?) and at night. Stop and talk to the neighbors to get a good perspective of the neighborhood.

Step into Capt. Buzzy's coffee shop on Broad and talk to the owner, Bob, and his workers and clients. The same goes for the Hill Cafe--the owner, Michelle, lived in the neighborhood for years.

The Fan's Finest Streets

"Other than Monument Avenue, what are the finest streets in The Fan? Currently renting in the 'burbs and hating it. Would prefer to move to the Fan district. Can someone tell me the best streets to live on and those that are reasonably safe? Do have one child; school district is not a factor as he is in private. Also, are sales slow in this area? Prices going down?"

Having lived in three houses and one condo in the Fan and I have begun to see the Fan as a series of little neighborhoods tied together by a strong association, great elementary school and the alley boundaries of Boulevard, Grace, Harrison and Floyd.

Monument has incredible facades, and after 18 year here, I am still astounded by the architecture every time I walk down the street. There size and interiors vary widely as does to the composition of each block--Monument still has a mix of single family, apartments, condo and businesses.

When trying to decide where to live in the Fan, park your car and take a walk and find out what feels good to you. If you like it in the day, check it out after work (is there parking?) and at night. Stop and talk to the neighbors to get a good perspective of the neighborhood.

With the recent addition of four-way stops all over the Fan, the traffic has calmed considerably, and Hanover and Stuart have become very peaceful. Grove is known for many of its large homes, and Grace has some of the finest architecture off Monument. Floyd is often more affordable and has the advantage of the proximity to the emerging Main and Cary Street Corridor's Restaurants and Galleries. Park is central to all and has the "3 triangle parks," including one beautifully landscaped one on Meadow and another walled children's park on Lombardy.

I often feel that the lower Fan has a European feel and the upper Fan has a little larger lots and a little more space for yards (and off-street parking). West Ave. is a treasure for all ages, but this "stork row" is golden for the kids who rule the sidewalks. The side streets each have there own personality, but many are sleepy with nice deep lots.

Sales are stronger in the Fan then in some other areas, but market conditions vary by condition and the quality of each house as well as its location and parking. A few sold the week they hit the market this month. If you don't have to sell, it is great time to buy, and it is always a pleasure to live in the Fan.

It's Time for a Short Sale

Recently, I came across the following post on a bulletin board: "I cannot afford my home. I have it on the market for less than I owe."

You need to work out a short sale between the Purchaser and the Lender. In the case of a short sale, the offer is not high enough to pay off the mortgage(s) on the property. Logically the lender should look seriously at these offers. Although they are taking a loss on a loan, the lender avoids the high cost of foreclosure and avoids the risk of adding another property to ever growing inventory of foreclosed homes. In practice, however, the process has proven to be very difficult. The lenders do not have the business model or the resources to adequately address these offers.

Personally, my team has worked on two properties of behalf of sellers. In one case, the lender (1st mortgage) is trying to work with the offer as well as offer compensation to the equity line lender. In the other, we could not persuade the lender from stopping the foreclose, and the lender bought it back at auction for $5,000 below our offer. Let your agent know what your needs are. There may be an investor waiting for your property. I wish you the best of luck.

Safe Neighborhooods for Kids

"My husband and I are looking into relocating to Richmond from Orlando, FL. We are 28 and 33 years old and My husband and I are looking into relocating from Orlando. We want a place that combines urban lifestyle for us with safety for our 1 year old daughter. Does anyone have a suggestion?"

Richmond's Fan District has a great combination of urban living, outstanding children's parks and an excellent elementary school (William Fox). While no neighborhood offers total safety, my wife and I have raised our kids (8, 7 and 4) in the Fan. When you are in Richmond, stop by the children's park at the intersections of Lombardy, Hanover and Park Avenues and talk to the parents who live in both in the neighborhood and in some of the other great neighborhoods surrounding downtown.