Warren Buffet Calling The Bottom?

[okaycuckoo]

Right now I can't see why Buffet would buy into housing stocks; even at 2002 prices they're probably substantially overvalued with plenty of room left to fall. In another couple of years, perhaps it will make sense.

I believe the worth of US home builders is traditionally calculated as 150-300% of their book value - value of land and construction they currently control. At the moment, the calculation is 100-125%, even after a plunge in the price of land and big incentive payments/gifts to shift inventory.

Mr Omaha may see that as a full discount, presuming that inventory isn't being added on and that land values (distinct from house prices) have taken their full plunge already.

But then, we're still talking about rumours here, aren't we?

[urban_hymn]

You could of course look at this another way and that is whenever Buffett buys a stock that is the bottom such is his ability to move markets.

Hence the value of spreading rumours about what he has bought.

I think in general though, most of us are better off not buying some at "20" and then more at "10" as we would effectively not be practising any money management rules at all - we would merely be gambling.

[MarkG]

You don't loose money if you were smart enough bought a London condo at 20K (and you think it's worth 100K in terms of future rental income), even if the price drops to 10K as long as you hold it.

When did we magically switch from _SHARES_ to rental property?

You're right that if those shares paid big dividends then over time you'd get your money back. But if you put 20k into shares which dropped to 10k and then made 100k in dividends over the next few decades, you'd still have missed a lot of opportunities for making more money with the money you lost in that time.

Most shares, of course, do not pay big dividends for the forseeable future that greatly outweigh their share price; otherwise everyone would be buying them and the price would be much higher. So you're talking about entirely artificial situations in order to justify doing something that's cost many people most of the money they put into the stock market. For the average investor, the last thing you should do is buy more of something that's declining in price just because it's cheaper than when you started... you should only buy more when it's _irrationally_ low and you should wait until others have realised this and the price is rising again.

Edited July 14, 2007 by MarkG

[carseller]

When did we magically switch from _SHARES_ to rental property?

You're right that if those shares paid big dividends then over time you'd get your money back. But if you put 20k into shares which dropped to 10k and then made 100k in dividends over the next few decades, you'd still have missed a lot of opportunities for making more money with the money you lost in that time.

Most shares, of course, do not pay big dividends for the forseeable future that greatly outweigh their share price; otherwise everyone would be buying them and the price would be much higher. So you're talking about entirely artificial situations in order to justify doing something that's cost many people most of the money they put into the stock market. For the average investor, the last thing you should do is buy more of something that's declining in price just because it's cheaper than when you started... you should only buy more when it's _irrationally_ low and you should wait until others have realised this and the price is rising again.

If it's a steal, why wait for someone else to take it before your nose? Or if you can't judge if it is a steal to start with, and have to wait for others to start buying, why be involved with stocks at all? Value investing is like going in a bookstore looking for a bargain. You don't wait for someone else to buy that cheap book.

I think you are trying to justify that I am wrong, but i' have read lots of books on Buffet and value investing, and I'm pretty sure I am right.

Edited July 14, 2007 by carseller