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The Economy, Warren Buffett, & Swimming Naked

“You Only Find Out Who Is Swimming Naked When the Tide Goes Out”

–Warren Buffett

A recent article in the New York Times caught my eye—it included Warren Buffett’s classic quote above about risk and investing.

While Buffett’s maxim is certainly clever, its applicability to financial markets and the state of the economy should not be overlooked.

In the article, Neil Irwin traces the connection between emerging markets across the globe and and their potential to crash the economy here in the United States.

Without delving into the nitty-gritty details of global economic trends, suffice to say that we’re likely about to see just how much of the recent growth in other parts of the world has been driven by a credit bubble and how much is real, sustainable economic growth.

The tenuous nature of the recent economic recovery, coupled with the plunge in global oil prices and the increase in the issuance of toxic loans globally, should give us all reason to be cautious. After all, when the economy is weak it takes far less to tip it toward recession than when it is strong.

Now, I am not trying to scare anyone or deter people from making prudent investments–particularly investments in our local real estate market. My intention is to simply urge caution and be aware of what is happening locally (several properties recently sold at auction for prices that only a few years ago might have been unthinkable).

I would like to see us engage in more of a conversation here locally about how we can position ourselves (to the extent that it is possible) in such a way that we can avoid the typical mistakes that happen when economic disruptions occur. Preemption is never easy but is always worth whatever time, effort, and energy you spend on it.

Going back to Buffett’s quote, one thing is clear: He’s right. There is nothing to panic about but it’s always good to keep your eye on the future and formulate your plans accordingly–especially when it comes to real estate.

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