Five for the Weekend #9

If you need a few things to read between now and Monday, you might check out the following.

• Prem Watsa of Fairfax Financial (FFH/NYSE) gave an interview in Canada, which qualifies as must-read in my book. Asked about the US Government bailout and what the average person should do, Watsa said, "$700-billion US, or whatever, is not going to stop this. This is going to be long and deep and people want to save money. Be careful about risk. There are unintended consequences in fixing this and all are ahead of us. This will take years to sort out. There will be problems here in Canada, too. If the U. S. has a recession, we will. For individuals, safety is No. 1. Buy real estate for your family, but not as an investment. Don't borrow for new cars. Keep borrowing at a minimum. Now's the time to protect your money. Keep your life simple. Be mortgage-free if you can. People must hunker down." I suspect the late John Templeton would say the same.

• Watsa's words of caution -- "people must hunker down" -- ring true in this environment. At least to my ears. I'm an individual investor and personal finance is largely outside the realm on this blog. But not entirely. Last June I posted about Why I Maintain an Emergency Fund. The benefits of having such a fund aren't simply financial.

• Richard Beales of BreakingViews states something that should be obvious, but probably won't be to some casual readers. That Warren Buffett's recent investments in Goldman Sachs and General Electric aren't stock tips -- they're preferred stocks paying 10% dividends.

• Anthony Bolton is the legendary UK value manager not all that well known in North America, unfortunately. No one is perfect and he had a bad patch in the early 1990s. But Bolton has proven successful over the long haul and his opinions are always welcome here. This article in the Daily Telegraph has Bolton saying now is the time to buy.

• Africa Confidential continues making its lead story free on its website. It's a treasure to find in-depth reporting on a continent receiving far too little press in America. This lead article focuses on South Africa's political scene with Thabo Mbeki losing power.

If you only can read one article this week, read the linked interview with Prem Watsa. I hope it won't wreck your weekend.  ;-)

Comments

[Bill aka NO DooDahs!]

Be mortgage-free?

Paying off a fixed-rate mortgage early is the stupidest damn thing a person can do. Note I said "fixed rate" and there will be more specific and personal cases where it might make sense, but let's look at two economic examples.

Ex. 1, hyperinflation: Make the payments LATER with dollars that are worth LESS. If you need to put the cash into assets, then use it to buy OTHER real estate on money-down, fixed-rate mortgages.

Ex. 2, rapidly falling home prices. You want to pay THAT off early? Having a mortgage means having the cash (more valuable in terms of the real estate it would buy) and the option of defaulting. Paying it off means not having the cash and having a falling asset.

[Dave]

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[John]

Bill: I can see it both ways, but that's just one of all Watsa said. And so much of this debate (whether to pay off your mortgage) gets played and replayed on finance blogs that there's nothing I can add. I think it may come down to a person's mindset, but I don't know.