If Warren Buffett was going to invest in anything right now, where would he put his money?
At first, that question may be difficult to answer. But if you think about Buffett's classic investment approach - focusing on real assets with a reliable return and prizing valuation - it gets a little easier.
Try the housing market - single-family rental homes to be precise.
"If I had a way of buying a couple of hundred thousand single family homes and I had a way of managing them... I would load up on them and take mortgages out at very very low rates," Buffett said in an interview with CNBC. "It's a very attractive asset class right now."
It's a classic buy low, sell high opportunity - and one that more and more investors are taking advantage of.
In fact, sales of investment and vacation homes surged 65.4% last year to 1.2 million units, the highest level since 2005, according to the National Association of Realtors (NAR).
Naturally, low home prices were a major catalyst for that surge.
Last year, U.S. home prices were down 33.8% from their 2006 peak. But another factor was increased interest from investors - many of which boast six-figure salaries and desire a more consistent return than the stock market offers right now.
"I have doctors, lawyers, an engineer from Apple who told some of his buddies," Brian Hardie, who manages rental properties, told Forbes about his clients.
And with foreclosures on the rise this year, there will be an even greater opportunity for entrepreneurial investors, which means Hardie's client list at Regency Property Management will likely continue to grow.
Indeed, foreclosures that had previously been held up by litigation relating to robo-signing and other malfeasance on the part of banks are once again moving back through the system following a $26 billion settlement five major banks reached in January.
A February report from RealtyTrac showed new default notices - the first step in the foreclosure process - were up 1% from January. Furthermore, default notices increased dramatically in some states, such as Pennsylvania (35%), Florida (33%) and Indiana (37%).
As the NAR recently pointed out, 20% of February home sales were foreclosures. And if RealtyTrac's forecast for a 25% increase in foreclosures this year comes to fruition, the number of distressed sales will rise even further.
Meanwhile, the heightened rental property interest, dually helped by inflation, has given landlords more power - which means rents across the country are increasing.
This has created an optimal situation for investors that have the wherewithal to make it work for them.
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Investors Turn to TIPS as Warren Buffett Warns on Inflation
Warren Buffett last week did more than warn investors on the dangers of low interest rates and inflation.
The Oracle of Omaha also had harsh words for traditional bonds.
In a Fortunearticle Buffett went so far as to say, "Right now bonds should come with a warning label."
"They are among the most dangerous of assets," Buffett wrote, "Over the past century these instruments have destroyed the purchasing power of investors in many countries."
To prove his point Buffett labeled inflation as the primary threat to bond investors, noting it takes no less than $7 today to buy what $1 did in 1965.
Instead of bonds, Buffett recommends "productive assets," including farmland and real estate.
But he saved his highest praise for stocks, especially the stocks of companies like The Coca-Cola Co. (NYSE: KO) and International Business Machines Corp. (NYSE: IBM), that consistently deliver inflation-beating returns.
But what if you're not comfortable betting most or all of your chips on stocks? And if traditional bonds are out, where else can investors turn for inflation beating returns?
TIPS Insure Wealth Against InflationEnter Treasury Inflation Protected Securities, or TIPS.
Unlike regular bonds, TIPS are designed to protect your principal against the ravages of inflation.
In fact, TIPS zig when other securities zag, providing diversification and safety to your portfolio.
TIPS are considered to be an extremely low-risk investment since they are backed by the U.S. government, and their par value rises with inflation while their interest rate remains fixed.
Here's how they work.
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Why Warren Buffett Is Buying – And You Should Be Too
Legendary investor Warren Buffett recently made news with his purchase of International Business Machines Corp. (NYSE: IBM), though I can't say I'm surprised.
Despite criticism that he's buying into a top-heavy market, that IBM is at a premium, and that he's losing his touch, chances are Buffett knows exactly what he's doing.
And guess what, it's exactly what I've been counseling investors to do since this crisis began - bolster defenses by putting money to work in companies that are backed by trillions of dollars in tailwinds, and have solid defensible businesses (Buffett calls these "moats").
According to a Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) filing made Monday but dated Sept. 30, 2011, Buffett also waded into General Dynamics Corp. (NYSE: GD), DirecTV (Nasdaq: DTV), CVS Caremark Corp. (NYSE: CVS), Intel Corp. (Nasdaq: INTC) and Visa Inc. (NYSE: V).
In the third quarter, Buffett funneled $10 billion into Berkshire's IBM stake, which now stands at 5.5%. Of course, Berkshire maintains a $13.5 billion stake in The Coca-Cola Co. (NYSE: KO) that remains the firm's largest.
Buffett Pulls the TriggerAs a long time Buffett watcher, I am somewhat surprised that he picked up Intel and IBM, if only because the Oracle of Omaha has a well-documented aversion to tech.
Still, I can see the logic. Both companies are global giants poised to profit from the whirlwind of growth set to take place thousands of miles from our shores in the decades ahead.
There are technical similarities, too.
For instance, IBM's price has risen more than 29% this year. As a result, at least five analysts have removed their buy recommendations because they believe the stock may have run its course, according to Bloomberg News and YahooFinance . At the moment, less than 50% of the analysts who cover IBM recommend buying the stock.
Back in 1988, it was much the same situation. Coke had more than doubled in size and analysts had much the same reaction when it came to doubts about further growth. Many openly bashed the stock's prospects and completely ignored the global growth potential that today is Coke's mainstay.
Coke is up tenfold since then. Enough said.
Here's what I think Buffett sees:
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Warren Buffett's $24 Billion Bet on the U.S. Market
Investing legend Warren Buffett must be feeling good about the U.S. market and economic outlook - he's bet $24 billion on them.
Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) invested $23.9 billion in this year's third quarter, the most in at least 15 years.
The company bought almost $7 billion in stock last quarter, a 90% jump from the $3.62 billion in the second quarter and a staggering 739% increase from the $834 million purchased in the first.
The $23.9 billion also included the $9 billion acquisition of specialty chemical company Lubrizol Corp., finalized in September, and $5 billion in preferred shares and warrants in Bank of America Corp. (NYSE: BAC).
These billion-dollar investments by the "Oracle of Omaha" are another move signaling his bullish outlook on the U.S. market. He's said repeatedly the United States won't see a double-dip recession - and he's putting huge money behind that forecast.
"He sees something, and it's big," Thomas Russo, a partner at investment management firm Gardner, Russo & Gardner, told Bloomberg.
Where Buffett Placed His BetsBuffett and Berkshire's investments broadened the company's portfolio beyond its financial and consumer-related investment focus.
A Berkshire financial filing showed a $46 billion cost basis in the company's equity investments as of Sept. 30: About $15.9 billion in "banks, insurance and finance," $12.5 billion in "consumer products," and the remaining $17.4 billion in "commercial, industrial and other."
That's a 168% rise in the "commercial, industrial and other" category from Dec. 31, 2010 when such investments totaled only about $6.5 billion, and a 62% increase from 2011's second quarter.
"He's broadly diversifying across numerous industries, and he would perhaps want that to be part of his legacy," David Kass, a professor at the University of Maryland's Robert H. Smith School of Business, told Bloomberg. The recent spending "sounds like at least one major investment. And it wouldn't surprise me if it were two or three."
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Money Morning Mailbag: Ending Bush Tax Cuts Not a Cure-All for U.S. Financial Woes
The question of whether or not to extend the Bush tax cuts will be a pivotal issue as Washington prepares for this year's midterm election.
The Congressional Budget Office yesterday (Thursday) reported that extending the tax cuts would result in only short-lived economic benefits.
"[It would provide] a considerable boost to economic activity in 2011 and beyond for a few years," CBO Director Douglas Elmendorf told CNN. "Over time, [however,] the negative consequences of very high federal borrowing build up."
The CBO reported that if the cuts for most U.S. taxpayers were made permanent - as proposed by U.S. President Barack Obama - the nation's accrued debt (not including money owed to Social Security and other government trust funds) could climb to 100% of gross domestic product by 2020, up from 62% this year.
U.S. Job Market Continue Upward Swing, Fueling Confidence in Employment Recovery
The U.S. job market exceeded estimates by adding 290,000 jobs in April, the Labor Department reported Friday. The biggest upswing in four years indicates a strong upward trend in private sector hiring and a positive outlook for the recovery.
Experts say the job data shows that the recovery is making progress and should erase fears of a double dip recession - even if that progress is slow.
"The jobs report underscores this is a resilience of the recovery," said Lakshman Achuthan, managing director of Economic Cycle Research Institute. "When the business cycle is in an upswing, it starts to feed on itself, and the economy can withstand a pretty big shock without being tipped into a new downturn."
Goldman Director Linked to Insider Trading on Buffett Investment
Galleon Group founder Raj Rajaratnam Rajat may have engaged in insider trading on Goldman Sachs Group Inc. (NYSE: GS) stock by profiting from a tip from Rajat Gupta, a director at Goldman, The Wall Street Journal reported, citing a person it didn't identify.
The new disclosure stems from a government examination into whether Gupta gave inside information to Mr. Rajaratnam about a $5 billion investment Warren Buffett's Berkshire Hathaway (NYSE: BRK.A, BRK.B) made in the Wall Street bank before it became public knowledge.
In a March 22 court filing, the government revealed more details about the information it alleges Rajaratnam received, alleging that he or "co-conspirators" traded on non-public information, including advance notice about the Buffett investment in Goldman.
Know When to Fold'em: When Is the Right Time to Sell a Stock?
There's one word in every stock market movie ever made that's never uttered in a normal tone of voice. Never merely said, but rather shouted.
That word is SELL!
Indeed, no other word in the financial lexicon is so often associated with market uncertainty, investor fear, or in the worst case, outright panic . Truthfully, I can't recall a single film in which the protagonist calmly decides to sell based on reasoned analysis.
Of course, that's the case in movies because it makes for stronger plots - ones propelled by high drama and intense emotions. But all too often, it's much the same in real life.
And it shouldn't be.
Playing 'Follow the Guru' Can Be Fun – and Profitable – for Investors
If you wanted to distill all the world's best investment advice into a single sentence, it would probably come down to this: Follow the leader.
We've whittled the investing wisdom of these three stalwarts - and others - into 15 rules to live by. We offered the first five rules in Part I of this story, which appeared yesterday (Wednesday). Here in today's second installment, we offer the final 10 rules.
Playing 'Follow the Guru' Can Be Fun – and Profitable
If you wanted to distill all the world's best investment advice down into a single sentence, the result would actually be fairly simple: