Invest Like Warren, Not Jimmy Buffett

Lots of people claiming to be Warren Buffett-style contrarian investors will soon find that they're actually "Jimmy Buffett investors."

Warren Buffett has said that the secret to his success is that "we attempt simply to be fearful when others are greedy and greedy only when others are fearful."
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Recently, I've been seeing a lot of chest-beaters bragging on social media about buying real estate in the face of Covid. "All of you are afraid of coronavirus," they boast, "but I'm still buying!"

They think they're being greedy when others are fearful. You can almost hear them saying, "See, I'm JUST like Warren Buffett!"

But they misunderstand the situation.

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Sophisticated buyers of Multifamily assets are not fearful right now.

They are uncertain.

They cannot underwrite, because the current numbers are not reliable.

Sure, collections have been strong lately, because of government unemployment support.

But you cannot extrapolate current data into the future. Because no one knows how long the support will last.

Or what's really going to happen when the economy fully re-opens.

That results in them being unwilling to pay the high prices for Multifamily that sellers are still demanding.

They're not scared. They're waiting to see what will happen.

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The chest-beaters, meanwhile, are obtaining very small discounts off peak pricing, thinking that they are being contrarian.

But they aren't. They are still perma-bulls, trapped in Fear Of Missing Out, convinced that the market will come roaring back as soon as the economy re-opens.

They don't understand that fear has not set in yet.

And it won't until real pain has been experienced, with occupancies and rents dropping and some owners being foreclosed on or forced to sell at discounts.

They're jumping the gun.

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And they should know better, because the news is all around them that they should be cautious.

Heck, I've been arguing for caution for years now, as Multifamily prices diverged from the fundamentals, setting up the market for disaster if anything came out of left field to upset the apple cart.

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Many of these investors who bought too soon will find out that they are Buffett-style investors.

Just not the Buffett they thought.

They're really "Jimmy Buffett investors."

You know, Jimmy Buffett, who sang in his classic song, Margaritaville, "Yes, and some people claim / That there's [someone else] to blame / And I know, it's my own damn fault."

It will be their own damn fault for jumping the gun and buying a falling knife.

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I believe that we're just in the beginning of all this, and that the opportunity to buy Multifamily assets at bargain prices is coming.

We just don't know yet: (a) when the opportunity will arrive, (b) how big it will be, or (c) how long it will last.

Mark my words, it hasn't yet arrived. But it's on its way.

Those who are prepared will prosper.

And those who bought too soon will have to console themselves with a cold one and a sad song.