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Before You Buy... Is It Great?By
Monday, April 3, 2006
I was offered a great deal on some real estate this week... I know the seller and the property well, and the deal makes good sense just based on rental income alone. The thing is, it’s a nice property, but not a great property... Warren Buffett became the world’s second richest man by investing. Once, he bought cheap. Now he buys great. It took him many years to figure this out. Here’s how he tells it:
Right now, Warren Buffett is sitting on $45 billion in cash. He’s practicing what he preaches. Just because you have cash, doesn’t mean you have to spend it right now. Buffett wants to buy great assets, at fair prices. And his big cash position tells me he’s not finding fair prices right now... I think I’ll follow Warren Buffett’s advice in this real estate opportunity... Instead of buying an “acceptable asset at a great price,” I’ll wait on an “extraordinary asset at a fair price.” It’s actually what we do all the time in True Wealth. In 2001, we loaded up on cheap and great real estate stocks, like Simon Property Group (SPG). (Simon is up three-fold since then... and we took profits around a 100% gain.) This lesson is not an easy one to put into practice... it’s much easier to understand a low price than it is to figure a “reasonable” price for a great asset. But this is the way to Buffett-like profits... buy great assets at fair prices. So the next time you’re sizing up an investment, ask yourself, “Am I buying this because it’s cheap? Or because it’s great?” If it isn’t an exceptional asset, then wait. That way, you’ll have the cash when it comes along... Good investing, Steve Market Notes
NEW HIGHS OF NOTE LAST WEEK
Gold, silver, copper, zinc, palladium NEW LOWS OF NOTE LAST WEEK Frontline (FRO)… woes continue for oil shipping companies New High of Special Note… One of the best places to make big profits during the 2003 market rally, small cap growth companies (as measured by the Russell 2000 Growth Index), are still leading the market higher. This index of growth stocks has returned 100% in the past three years, nearly doubling the return of the S&P 500 during the same period. For now, growth rolls on… the Russell 2K Growth Index since 2003: |
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