The REAL Importance of Warren Buffett’s Words About Today’s Market [An Alternate Interpretation]


This week, I saw an interesting article on the blog. So interesting, in fact, that I was compelled to write a response.

The article in question is titled What Warren Buffett Just Told me About Real Estate is Great News for Investors, and it was written by a very nice lady named Mindy Jensen. In her article, Mindy conveys the exchange she had with Warren Buffett at the Berkshire Annual Shareholder Meeting.

First of all, Mindy, this is very cool that you were there, and it’s even cooler that you had an opportunity to ask the questions. And it’s great that you are able to share what was said with us!

Most of everything I know about real estate investing I learned from Buffett, and I really enjoyed your article. Your article came off as quintessential Buffett in many ways, though you might be surprised to know that I read it somewhat differently from you!

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Let Me Explain

You write:

‘Warren acknowledged that real estate was a factor in 2008 but said, “I don’t think we will have a repeat of that,” although he acknowledged he isn’t any better at predicting the real estate market than he is at predicting the stock market.’

Allow me to underscore the following:

“…although he acknowledged he isn’t any better at predicting the real estate market than he is at predicting the stock market.

Related: The 3 Types of Asset Classes (& Why Investors Like Warren Buffett Don’t Put Their Money in Just One)

 This is the absolute gold!

Which you followed this up with: “I don’t know, Warren. You’ve done pretty well in stocks…”

This exchange is increasingly interesting — you agree with this, Mindy. You thought it was highly interesting that Warren thinks the market, while hot, still offers good opportunities. This was reassuring to you.


I find this passage interesting for other reasons — indeed, because Warren tells us here that he is no good at predicting markets, which implies that his success has nothing to do with predicting markets. As opposed to questioning his between-the-lines messaging by saying, “I don’t know, Warren. You’ve done pretty well in stocks…” (as if that proves Buffett’s uncanny ability to predict markets), the smarter, though less intuitive, approach would be to take him on his word — he is not very good at predicting markets.

Major Premise: Buffet is highly successful.

Minor Premise: Buffett is no good at predicting markets.

Logos (Conclusion): Predicting markets had nothing to do with his success!

The natural question that follows is — if predicting the markets is not the thing which caused Buffett’s success, what did?

Consider What Warren Buffett Does

Simply put, Warren Buffett buys companies below their future intrinsic value. He is a fundamental investor and a value investor, and he seeks out opportunities to buy companies whose intrinsic value is, in his opinion, greater than the marketplace is willing to recognize.

Warren figures that a good company can’t be undervalued forever and that by buying it today at a discount to future intrinsic value, he can benefit from the delta once the marketplace finally wakes up and realizes that it had been undervaluing this company.

Related: Real Estate Investment Advice From Warren Buffett

Now You Have to Ask Yourself the Following Questions

Question: What he does — does it have anything to do with the market being good or bad?

Answer: Not a thing. Yes, it is easier to find the delta when everyone is scared and running away, but ultimately you can find the delta in good markets, and in bad. The point is — buy the delta, not the asset!

Question: What does Buffett mean when he says he is “no good at predicting the market”?

Answer: He means that he doesn’t care to even try. Why? Because it doesn’t matter. He buys the delta. I bet he underwrites 5,000 companies to find one that has the right mix of components in it.

Mindy, the reason for his success is not that Warren Buffett is able to somehow play the market or see that which many others don’t see, but that he is able to find the needle in the haystack that allows him to buy future intrinsic value at today’s price, while everyone else wants to diversify their retail investments!

What Does This Have to Do With Real Estate?

In Podcast 152, Serge, Brian, and I made a big emphasis on the notion that it is absolutely crucial to buy value add — and not to be a retail investor. We made a big deal about the necessity of buying below intrinsic value.

Guys, Warren’s delta and our value add are the same thing. In both cases, we are all searching for an asset whose future intrinsic value can be bought today at a discount. And then we wait for the marketplace to catch on while we massage the asset to help the marketplace recognize that which we already see — more value!



Warren’s comments are gold in that to those who know how to listen define a buying strategy which decouples from the conditions in the marketplace. He tells us that the market is hot and cap rates are low, but he doesn’t tell us that because of this there are no opportunities.

It is up to us to take the next step and understand that value investing is a function of buying delta to the marketplace, and it doesn’t much matter what the marketplace is.

Mindy, the importance of Warren’s comments and your article is not that he thinks the market is still good and we should keep buying. The importance is that:

  1. With a long-term horizon and professional underwriting, we shouldn’t care what the market is, and
  2. You have to buy below intrinsic value. Forget TK or any other type of retail investing. If you’re going to do it, be a pro!

It’s between the lines, as is the case with Warren Buffett, but it is clear as day. 🙂

Investors: What is your interpretation of Buffett’s words?

Let me know with a comment!

About Author

Ben Leybovich

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.


  1. Scott Trench

    Ben – I love this article, and agree completely with your approach here. I’d like to think that this is exactly how I approach my own investing. I’d like to have your opinion on this though – another favorite Warren Buffet quote of mine is this:

    “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price”

    I try to live this out in the sense that I’m uninterested in the run down cash flow opportunity in the C or D part of town. Instead, I want a wonderful location that I’d be proud to own today, and in 10 years from now. And I wouldn’t be opposed to buying a solid structure in that wonderful location that can be acquired at a fair price – even if it produces nowehere near the “2% rule.” Then I’ll hold onto it and let the wonderful location cash flow and appreciate faster than inflation through the ups and downs of the market over time.

    Of course, I’ll also keep trying to get the wonderful location at a wonderful price, but the point for me is to own land in really good locations, with structures that provide a comfortable amount of cash flow to cover operating expenses, financing costs, and capex.

    I also think that a huge component of being successful in Warren Buffet style wealth creation is being extremely well capitalized so that the markets can’t create devastation that can rattle your business. To another quote (I don’t think it’s Buffet though):

    “Leverage can’t turn a bad investment good, but it can turn a good investment bad.”

    While of course I use leverage as a real estate investor, I think I prefer to operate very conservatively on the leverage side of things and make sure that I have a strong cash cushion to avoid losing my properties that I believe, again, are in those wonderful locations.

    What are your thoughts on that as a caveat?

    To summarize – buy wonderful locations at fair prices, with conservative leverage, and run an efficient and stable business, letting the wonderful nature of your location help you build wealth over time.

    • Ben Leybovich

      Scott – thanks for jumping in. I was so much more gentle in this one than on occasions in the past…do you see how lovable I truly am now 🙂

      Enough of that,

      No – you are wrong. Buffet never buys wonderful assets at fair prices. He says it’s a good thing to do if that’s all you can do. But, he buys wonderful assets which are priced as though they are distressed. There is a difference between intrinsic value and market valuation, and he exploits it. You do not…

      You simply go into the marketplace and buy an asset which is high quality. However, it is nether distressed nor priced as such. There is no mechanical value-ad, so you are left to the whims of the marketplace…

      Now – you buy in a high quality marketplace, which legalized marijuana and hasn’t looked back, and you buy quality product. I think you will do just fine following this path – much better than people chasing TK PIGs in Mid-West with cash flow that only exists on paper.

      So – as a retail investor, your strategy is by far the best to follow, Scott. However, Buffet is not a retail investor. You are buying quality, which is good, but you are not buying the delta, which is not good. You could be more professional about your real estate investing, and you could be doing more to maximize the incredible marketplace you are in!

      But, at the end of the day, you are quite vocal about not needing to be a professional investor. You have a job – you love your job – and there is no way you will leave your job. Real estate investing is something you do on the side, and I don’t disagree with the validity of your approach. Finding the delta is a full time endeavor, and you’ve (likely rightfully) picked your job at BP as full-time engagement, in lieu of trying to spend your life looking for the needle in a haystack…

      As to leverage, that has nothing to do with anything. Quality of the asset and of the opportunity create returns. Leverage is necessary to amplify those returns and drive the IRR, but leverage won’t make a bad deal into a good one – leverage won;t create the delta 🙂

      You asked, I answered. And now, why don’t you just call me so we can continue!

  2. Jerry W.

    Thank you for taking the time to write your article. I do not know enough about Warren Buffet to make any educated guesses about how he invests. While I usually think I know most of what I need to know about investing, every once in awhile the clouds blow away briefly and I get to see some amazing things.

  3. This is a great explanation of how to succeed as an investor. Many times I meet people who are willing to over pay for a property even over what it’s currently worth with the desire that it will eventually grow. That’s a horrible investing strategy. You succeed by finding investments that are below current value like fixer uppers. Great job on pointing out that Warren doesn’t invest by predicting the future.

  4. John Jacobus

    While I completely agree that Warren seeks to buy wonderful companies at a discount to a conservative estimate of intrinsic value, one of the most important lessons he learned (after meeting Charlie Munger) was the importance of paying up for quality (i.e., buying a wonderful business at a fair price rather than a fair business at a wonderful price). In his early years, he focused on buying statistically cheap assets (“cigar butts”) with static or declining intrinsic value. These were good, fair or distressed assets purchased at distressed prices. Charlie Munger helped him to recognize structural factors in businesses that drive GROWTH in intrinsic value. Berkshire’s acquisition of See’s Candies and Coca-Cola are good examples of this principle in action. Neither were purchased at distressed pricess. However, they were priced by the market without full recognition by others of the structural components that drive long-term value. I think the key thing that we all agree on is that Warren seeks to purchase mispriced assets, whether at distressed prices or prices that don’t reflect long-term intrinsic value. In his early days, this was demonstrated through purchases of distressed businesses at distressed prices (e.g., Berkshire Hathaway, Dempster Mills). In later years, this was demonstrated through purchases of wonderful businesses at fair prices whose long-term value was not priced accurately by the market. Recent acquisitions (BNSF, Kraft, Heinz, Precision Castparts) were not purchased at distressed prices, regardless of your caluation metric of choice.

    • Ben Leybovich

      Yes, warren knows that appreciation is necessary to drive long-term IRR, and crap doesn’t appreciate – quality appreciates. This is why Scott will do well enough. However, imagine buying at a discount to begin with – this is why Warren is able to do what he does…

      Thanks indeed for reading, John!

  5. Daniel Eisman

    “the reason for his success is not that Warren Buffett is able to somehow play the market or see that which many others don’t see, but that he is able to find the needle in the haystack that allows him to buy future intrinsic value at today’s price, while everyone else wants to diversify their retail investments”

    Thanks for your insights as always Ben, I love this. Warren doesn’t have a magic crystal ball telling him how markets are going to react, rather he is always searching for the needle in the haystack so he can buy an asset below intrinsic value. Great takeaway for beginning investors.

  6. John Suralik

    Great blog post! It was a great realignment to what I want my core strategy to be: buying great assets below their true value. It is easy to get swept off of the fundamentals when other drivers are influencing decisions like simply adding doors to a portfolio, or buying a pretty property. Reading Snowball: Warren Buffett and the Business of Life gave returns like holding an undervalued asset. From understanding why he made investments and how he valued them to seeing how his wealth grew overtime was the important lesson that I walked away from.

    At one point in the book, he was buying stock that had three times cash and assets on the books after their debt was subtracted to the price of the stock. In the beginning he was “buying cigar butts” and holding them for one last puff, but as his capital grew he could add value more creatively. Right now my cigar butts are undervalued SFH, but in the future I’d love to get more creative in adding value including applying variances, repurposing Realestate, and other more involved strategies.

    • Ben Leybovich

      I often say – investors go through cycles individually, just like markets. This was the case for Buffett as well as anyone else. All things change in life, and this is the only constant…

      Thanks indeed for reading, John!

  7. Jason Lewis

    Would you say to flip once the intrinsic value has been met (whether that is 6 months or 3 years) or long term hold it knowing your basis was low? I know that’s a personal investing style question (and personal goals) but feel free to share your personal preferred style.

    • Ben Leybovich

      Jason, I would think you sell at whatever time you can maximize your stated objectives. If the asset as such that your returns can be projected to satisfy you forever, then hold forever. Otherwise, when you reach the point of diminishing returns, you sell…whatever works for you 🙂

  8. Raymond Hunce

    Great article. I first learned about investing by studying Buffett and reading the books that got him started (Intelligent Investor and Security Analysis, both by Benjamin Graham), and when I shifted to looking into real estate I was pleased to see the tremendous overlap, from an investor’s point of view, of investing in businesses versus investing in real estate. This article explains very well the fundamental essence of value investing and it was great mental reinforcement to read it and be reminded of what one should always keep in mind when making their investment decisions. I’m new to BiggerPockets but am so grateful for everyone that put this website together and all those that make up the BP community. I also love the Podcasts! This place is of tremendous value, and it’s thanks to the generosity of those who are a part of every aspect of this forum.

  9. Luke Grogan

    Great blog post and I think I enjoyed the discussions in the comment section equally well. I am an active buy and hold for cash flow investor, but I’m new to the community here. I will definitely be catching up on your blogs and articles as well as podcast 152 and the others.

    Thanks for the information and discussion here.

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