I admire Warren Buffet's humility:

In the physical world, great buildings are linked to their architect while those who had poured the concrete or installed the windows are soon forgotten. Berkshire has become a great company. Though I have long been in charge of the construction crew; Charlie [Munger] should forever be credited with being the architect.

This is an excerpt from his recent letter to Berkshire Hathaway shareholders, which, this year, he opens up with an obituary to his late partner, Charlie Munger.

I don't agree with everything Warren says and writes. He, for instance, doesn't seem to like crypto and streetcars. Though, surely, he'd really dig my CryptoParisian.

That said, I never miss his letters and his thinking has been broadly instrumental in how I tend to think about real estate.

If you take his description (same letter) of what Berkshire does, and replace businesses with properties, this is what you get:

Our goal at Berkshire is simple: We want to own either all or a portion of [properties] that enjoy good economics that are fundamental and enduring. Within capitalism, some [properties] will flourish for a very long time while others will prove to be sinkholes. It’s harder than you would think to predict which will be the winners and losers.

This is a good way to think about real estate.

At the highest level, I agree with the premise of this tweet from The Real Estate God. The overarching argument is that one's main criteria for selecting a real estate market in which to enter should be "the place with the least competition." And the reason for this is that less competition equals less price discovery, which then equals more mispriced assets and more opportunities to generate outsized returns.

Going even further, the argument here is that you're actually taking on less risk by buying mispriced assets in less competitive markets because you can model reality (things like in-place cash flows and market rents) as opposed to betting on the future (things like rental growth and/or cap rate compression). Said in a different way, it's easier to find deals and "make money on the buy"; and, once again, I would mostly agree with this.

But in my mind there's a very important caveat. And it's akin to the advice that the late Charlie Munger supposedly gave to Warren Buffet: "Forget what you know about buying fair businesses at wonderful prices; instead, buy wonderful businesses at fair prices." While it is true that you might find wonderful pricing in less competitive markets, there remains the question of whether you're also buying wonderful real estate.

And I think that's an important consideration.

I have a great deal of respect for Warren Buffet. Much of what I know (or think I know) about investing has come from listening to and watching him and his partner Charlie Munger. Surely they have got to be the most successful investors living today.

But there are some things that I don't always agree with them on. The first and most obvious one is crypto. Warren thinks it is speculative rat poison and I think it is the future of the internet. I understand where he is coming from in that it does not produce cash in the same way as say a farm or an apartment building. But that doesn't mean it won't have value.

The second one, as I have learned today, is maybe streetcars. As a rule, Warren doesn't typically engage in local politics. But he recently decided to break that rule through a letter he wrote to the editor of the Omaha World-Herald, lobbying against a new $306 million project that I believe is going ahead regardless.

Here's an excerpt from the letter:

“Residents can be far better served by extended or more intensive service by the bus system,” Buffett wrote. “As population, commerce and desired destinations shift, a bus system can be re-engineered. Streetcars keep mindlessly rolling on, fuelled by large public subsidies. Mistakes are literally cast in cement.”

I should, however, be clear that (1) I know nothing about Omaha and this streetcar project, and (2) "streetcars" can be nuanced. There are streetcars that compete with car traffic and have short station spacing, and there is light rail transit on its own dedicated tracks and with farther station spacing. One size does not fit all.

Here in Toronto, we have lots of the former and they generally move you around at the slowest possible speeds. Sometimes it is faster to just walk. But we are also getting a new light rail line next year and that should move much faster. I can also tell you that when I worked in Dublin many years ago, I took their Luas to the office every day and loved it.

Again, I don't know the specifics of Omaha's streetcar project. Maybe Warren is right or maybe he is wrong. And that's why I was careful to say "maybe" above. But I do know that in the right urban contexts and when done well, I am a fan of light rail transit.