Two Investment Ideas

Quote of the day:
“When I see people destroying their privacy — what they think, what they feel — by beaming it out to millions of viewers, I think it cheapens them as individuals.”
--Richard Widmark, on why he never appeared on talk shows.

Times of economic turmoil always present investment opportunities. A good indicator of such an opportunity is one that elicits the following response from your friends: “What are you, nuts?”

Many of us like to consider ourselves apart from “the crowd.” We say to ourselves that we are following our own unique, enlightened path. But contrarian thinking is very hard.

Investors behind the truly “smart” money are invariably contrarian thinkers. They buy when most are interested in selling, and thus they buy cheap. Smart money is patient and quiet. If and when we learn where their money is going, it’s already gone there.

The best-known contrarian is Warren Buffett, whose investments have become so large that it’s hard for him to stay quiet. It’s always news when he makes a move.

I don’t know what Warren Buffet is investing in right now, but there are two clear areas of opportunity: municipal bonds and residential real estate.

Real estate may be more obvious to the average person. There is virtual unanimity that the bottom of the market is still to come.

While everyone is standing around waiting for the bottom of the market, there are opportunities to buy properties at least 20% below their prices two years ago. Over the next two to three years, I have no idea where prices may go. But it is clear that there are some very good values appearing.

This is even more true in the municipal bond market. Because there is no tax on interest paid by these bonds, they usually pay significantly less than equivalent treasury securities.

But due to the turmoil in the credit markets--and specifically concern about the health of bond insurers--investors have been shunning municipal bonds for the rock-solid safety of treasuries. This concern has been way overdone, and top-quality munis now are yielding more than treasuries--and the yield is tax free.

Prices on municipal bonds are very low right now, and I bet there is some serious smart money taking a hard look at them.