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<\/p>\nIt was a warm and sunny December day at the beach for tourists seeking refuge from colder weather in Khao Lak along Thailand\u2019s western coast. But why were the animals acting so strangely? Why were elephants trumpeting in agitation?<\/p>\n
And why were flamingoes and scores of bats taking flight to head inland? Why did typically obedient dogs refuse to take their daily walk on the beach?<\/p>\n
Eventually, the elephants\u2019 trumpeting turned to wailing. They became so agitated that they broke their chains to flee to high ground, in several cases carrying startled tourists with them.<\/p>\n
While over a quarter million people lost their lives in the devastating tsunami that struck hours later, widespread reports from around the Indian Ocean said the animal population escaped virtually unharmed.<\/p>\n
Even at the hard-hit Yala National Park in Sri Lanka, stunned wildlife officials reported that hundreds of elephants, leopards, tigers, wild boar, deer, water buffalo, goats, dogs, monkeys, birds, smaller mammals, and reptiles had escaped unscathed.<\/p>\n
\u201cWe have not found any dead animals along this part of the coast,\u201d said Goson Sipasad, manager of Khao Lak National Park. He added that all of the elephants under his care went high into the hills and did not return for some time.<\/p>\n
Yet more than 3,000 people were killed by the tsunami at Khao Lak alone, according to Times News Network. And the final death toll was a devastating\u00a0 227,898 human lives across 14 countries.<\/p>\n
Frustratingly, seismologists have sophisticated instruments that can measure quake factors during and after the fact, but no one can predict exactly when one will happen.<\/p>\n
So, how is it that animals can not only know that a disaster is coming, but also know exactly what they need to do to respond?<\/p>\n
It’s undeniably interesting to think about, but you might be wondering what it has to do with real estate investing.<\/p>\n
I\u2019m glad you asked.<\/p>\n
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As some of you know, I\u2019m doing a series of Warren Buffett-related posts with my friends John Jacobus<\/a> and Bryan Taylor<\/a>. John and Bryan are investing in mobile home parks right now, and to prepare for that, they spent years gobbling up as much Buffett wisdom as possible. You\u2019ll find them at Berkshire Hathaway\u2019s annual meetings, and if you need to know Buffett\u2019s opinion on almost anything, they probably know it off the top of their heads.<\/p>\n Warren Buffett is arguably the most famous investor of our time. He’s also one of the most successful. So, you may be surprised when I share with you how he thinks and invests with the prospect of an economic tsunami in mind. I know I was.<\/p>\n When all signs point to a potential market boom or market bust, and most investors begin strategizing about what to buy, what to sell, and what to hold in the face of ups and downs, Warren Buffett does absolutely nothing. <\/strong><\/p>\n Wait, what?<\/p>\n That\u2019s right. Buffett takes no action based on these factors.<\/p>\n Buffett doesn\u2019t look at his investments that way. He doesn\u2019t try to predict market cycles or time his entrances or exits.<\/p>\n Buffett is famous for saying that he cannot predict the market\u2014and anyone who says they can is not telling the truth. Therefore, he wastes no time contemplating what will happen in the future, especially at the macro level.<\/p>\n His steadfast way of thinking boils down to the fundamental stance that he views his decisions based on individual business and investment opportunities. He analyzes investments using a margin of safety<\/a> and often completely ignore any predicted macro trends.<\/p>\n At the 2003 annual Berkshire Hathaway meeting, Buffett said:<\/p>\n \u201cWe have $16 billion in cash not because of any predictions [about a market decline], but because we can’t find anything that makes us want to part with that cash. We’re not positioning ourselves. We just try to do smart things every day, and if there’s nothing smart, then we sit on cash.\u201d<\/p><\/blockquote>\n Humans don\u2019t seem to have the abilities that some animals do to predict tsunamis and other natural disasters. And the same applies to markets and macro trends.<\/p>\n So, if you can accept that this is true for you, just like it is for Buffett, maybe you should consider reducing your exposure to these disasters\u2014literally and metaphorically.<\/p>\n Don\u2019t live next to the ocean. <\/strong>(Buffett lives in Omaha, after all.)<\/p>\n Related: <\/strong><\/em>What Would Warren Buffett Do? 12 Quotes for Smarter Investing<\/a><\/em><\/p>\n Check out this excerpt from Buffett\u2019s 1988 letter to shareholders:<\/p>\n Considering Berkshire\u2019s good results in 1988, you might expect us to pile into arbitrage during 1989. Instead, we expect to be on the sidelines.<\/em><\/p>\n One pleasant reason is that our cash holdings are down\u2014because our position in equities that we expect to hold for a very long time is substantially up. As regular readers of this report know, our new commitments are not based on a judgment about short-term prospects for the stock market. Rather, they reflect an opinion about long-term business prospects for specific companies. We do not have, never have had, and never will have an opinion about where the stock market, interest rates, or business activity will be a year from now.<\/em><\/p>\n Even if we had a lot of cash we probably would do little in arbitrage in 1989. Some extraordinary excesses have developed in the takeover field. As Dorothy says: \u201cToto, I have a feeling we\u2019re not in Kansas any more.\u201d<\/em><\/p>\n We have no idea how long the excesses will last, nor do we know what will change the attitudes of government, lender[s] and buyer[s] that fuel them. But we do know that the less the prudence with which others conduct their affairs, the greater the prudence\u00a0with which we should conduct our own affairs.<\/strong> We have no desire to arbitrage transactions that reflect the unbridled\u2014and, in our view, often unwarranted\u2014optimism of both buyers and lenders. <\/em><\/p>\n In our activities, we will heed the wisdom of Herb Stein: \u201cIf something can\u2019t go on forever, it will end.\u201d<\/em><\/p><\/blockquote>\n Yesterday, one of my California investors emailed to get my opinion about whether or not she should invest in a rental home in a resort area on Florida\u2019s coast. After all, prices there have more than doubled since the recession, and they seem to be going up with no end in sight.<\/p>\n I kindly pointed out that Florida residential prices also fell over 50 percent in the last downturn. And while some investors have made a fortune timing the market in Florida, I reminded her that they had the discipline to buy at the bottom.<\/p>\n But this ain\u2019t the bottom, sister.<\/p>\n I reminded her that certain types of real estate have inherent predictability and stability<\/em> that you can\u2019t get by investing in stocks, commodities, and other investment vehicles.<\/p>\n Since real estate investors have this wonderful benefit, why should we add an unnecessary layer of risk into the mix? Why would we mess it all up for ourselves?<\/p>\n This is one of many reasons that my partners’ and my funds are invested in mobile home parks and certain self-storage assets. These asset types did very well in the Great Recession<\/a>\u2014and have done very well in boom times since.<\/p>\n Think about it.<\/p>\n If I was your landlord and I raised the rent on your thousand-dollar apartment by 6 percent, you may choose to move rather than pay me an extra $60 per month. This is especially true if you know you plan to rent long-term, and that means $720 extra this year\u2014and even more next year.<\/p>\n But if you are renting a self-storage unit from me for $100 per month, and I raise your rent by 6 percent, you will probably not take a day off work, rent a U-Haul, and recruit your friends to help you load up all your stuff and move it down the road to save $6 per month<\/a>.<\/p>\n For reasons like this, self-storage tenants are inherently “sticky,” meaning they tend to rent for quite a while.<\/p>\n Or let\u2019s say you live in a mobile home park and a professional new owner takes over from a mom and pop. In addition to cleaning up the place and adding amenities, you learn that your lot rent is going up by 10 percent\u2014from $300 to $330.<\/p>\n You may be mad. But are you going to spend $5,000 to hire someone to pick up your trailer and move it down the road to a crummier place to save $30 per month? Not on your life.<\/p>\n And if you get laid off, or your income drops, or you don\u2019t like the idea of living in a mobile home park anymore, where else will you go? The price of every other option is substantially higher.<\/p>\n (Please don\u2019t tell me you\u2019ll move to a yurt. I know some people who did that; no one visits them. It’s not surprising given the place smells like body odor… and goat milk.)<\/p>\n This is why mobile home park tenants are inherently sticky, too.<\/p>\nMore Buffett Investing Wisdom<\/h3>\n
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<\/p>\nHow Should Real Estate Investors Apply Buffett’s Advice?<\/h3>\n
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