In one sentence: A rerun of the 2015 real estate episodes: see 033 for the farm and NYC building and 032 for the cap-rate basics; this note records only the points that stand out.
Key ideas
- Can you buy a $10 bill for $5? Efficient-market believers call Buffett a statistical outlier; Phil recalls Buffett's 1988 Columbia talk on the "superinvestors" of Graham-Doddsville, whose shared roots argue against luck. [00:00–05:00]
- Specialism lowers risk. Danielle's example, which she attributes to Atul Gawande, is a Canadian hospital that does only hernia repairs and has very low complication rates; Phil ties it to narrowing your circle ("canyon"). [05:00–09:30]
- Break it down. A huge task becomes small steps; for property, learn one neighbourhood, replacement costs, supply coming, and what drives demand. [09:30–13:00]
- Scuttlebutt. Templeton's word for keeping an ear to the ground. For stocks the problem is filtering, not finding, information. [12:30–17:30]
- Know the edges. Munger: know where your circle ends and stay away from the boundary; Phil wants "certainty in the parameters of your knowledge", as Danielle puts it. [14:30–18:00]
- Buffett owns many asset types. Farms, real estate, bonds, commodities, private companies, options and stocks, with a bargain price as the common thread. [20:00–22:30]
- Two kinds of diversification. Within stocks it covers lack of knowledge; across asset classes it follows the all-weather logic (Dalio), which lowers volatility without raising returns. Phil says such a portfolio suits large wealth aiming at about 7–9%. [22:30–29:00]
- Cash-flow return versus total return. An 8% yield is "retail" or a discount depending on market cap rates; Phil's target is 15% overall, with 8% on real estate cash flow fine as one part. [29:00–32:30]
- The farm and the building. Bought from the FDIC and the Resolution Trust Corporation after bubbles popped, at prices giving a ~10% farm return and a building next to NYU that Phil says Buffett bought in 1993 (Phil's dating). Phil argues location is the property's "moat". Verify details against Buffett's letters. [32:30–49:00]
- Why still stocks. Real estate cycles are slow; in stocks some industry is always on sale, so you can find a bargain somewhere. They preview a REIT episode. [49:00–52:00]
How it maps to RuleOne
- Cap rate is the property cousin of the Ten Cap on the site; compare yield to price.
- Cash on /holdings/ waits for bargains in any asset type, with stocks being the main hunting ground.
Buffett, Munger and Graham links
- Buffett, "The Superinvestors of Graham-and-Doddsville" (Columbia Business School's Hermes, 1984, from a talk marking the 50th anniversary of Security Analysis). Phil dates it to 1988; check.
- Buffett's 2013 letter, published 2014, discusses his farm and NYU-area property (Phil cites a Fortune piece from February 2014).
- Dalio's All Weather approach, from Bridgewater.
Words to know
- Cap rate: net operating income divided by price.
- All-weather portfolio: assets chosen to hold up in different economic conditions.
- Scuttlebutt: gathering firsthand information from people near the business.
Try this
Estimate a yield for a local property or a REIT on /stocks/, then compare it with a stock's Ten Cap on its page.
Check yourself
- Why does the hospital example matter?
Answer
Extreme specialisation in a small area reduces risk, like a narrow circle of competence. - Why does Phil still prefer stocks to property?
Answer
More industries and faster cycles mean more bargains to find.
Short quotes
"Certainty in the parameters of your knowledge." (Danielle, ~18:00, auto-transcribed)