Greg Abel Committed $6.8 Billion to Homebuilders Like Lennar, Increasing Berkshire's Stake by 30%, Even as Mortgage Rates Sit Near 7.5% and Builder Sentiment Hits Multi-Year Lows. Is This Bold Conviction or a Costly Miscalculation?
Berkshire Hathaway thinks in decades, which changes the story around investing in housing stocks.
Overview
The housing market is not in a good place right now, with rising prices pushing the dream of home ownership out of reach for many people. Rising interest rates make the story even worse, since they increase the cost of taking out a mortgage. Greg Abel, the CEO of Berkshire Hathaway (NYSE: BRKA)(NYSE: BRKB), doesn't seem to mind these concerns because he's investing in housing companies anyway. Here's why this isn't a big mistake, and it all has to do with time.
Investors tend to think short-term, punishing even historically well-run businesses if near-term performance is weak. That's basically the story in the housing sector, where stocks like Lennar (NYSE: LEN) have plunged over the past year. Abel stepped in to buy when the stock was roughly 40% below its 52-week high, increasing Berkshire's ownership stake in the business to roughly 10%.
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Originally published at www.fool.com.