For those who are unaware, Warren Buffet is the richest man in the world with a net worth estimated at $62B. Mr. Buffet (Buf-fet…not Buf-fay—unless, of course, you’re French), is the CEO of Berkshire Hathaway which has an unprecedented 25%+ annual return to its shareholders for the last 25 years. Known as one of the best investment minds of our time, Warren Buffet has lived a life of simplicity and practicality. Although chairing a mega-billion dollar company, his annual salary in ’06 was only $100,000.

Last weekend Berkshire held its annual shareholders meeting. Many consequential articles and discussions have proliferated via the media. There are numerous words of wisdom and investment strategies that could be applied to many facets; our goal is to focus on real estate.

In the meeting Mr. Buffet said, "There's no reason we should become fearful if a stock goes down. If a stock goes down 50%, I'd look forward to it. In fact, I would offer you a significant sum of money if you could give me the opportunity for all of my stocks to go down 50% over the next month."

While the first reaction might be to point out the obvious fact that the topic is stocks and not real estate, let’s consider what he is really saying. The inference is that most people's emotions work backwards. When stocks go up, they feel good (greedy). When stocks go down, fear runs wild like a squirrel from a hawk.

Mr. Buffet would say that we should look at investments like a frugal individual looking for groceries or clothes: seeking out sale prices, and never regard falling prices as inherently bad news. He would say that falling prices create the opportunity to purchase more of what was once worth owning.

In that single idea Buffet captures the difference between investing and speculating.  Investing looks to purchase something inherently valuable and hold on to it for as long as possible while watching the under-valued asset increase in value in the market. A speculator only wants the price to go up as quickly as possible so he can sell as fast as possible.

How does this apply to real estate?

Very well actually. You see, there is a mindset running rampant in society today at the core of the housing troubles we see today; the mindset is a get rich quickly mindset. Fueled by late-night television and the creation of easy access money, real estate became a method for quick and easy money. If a Buffet-like 50% decline in value were to occur (which is occurring in some places), what would be an investors response? How would the Oracle of Omaha respond? He would likely buy up the homes and wait for the market to value the homes again. This strategy only works if there is something inherent in the home of value, something of worth about the home that the market will value again.  While it is unlikely that any of us will follow the example of Mr. Buffet and live in the same house for 50 years, the model for personal real estate is one to take notice. The house Mr. Buffet purchased for $31,000 is now worth about $700,000. Obvious difference disregarded, it’s important to focus on finding an inherent value in a property that will grow in time. The identification of inherent characteristics of value is a subject for another day and another article. For now, know that fluctuations in the marketplace are not to be feared but to be embraced…so speaketh the Oracle.