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The 5 Keys To Finding The "Perfect" InvestmentBy
Saturday, March 10, 2007
Ah, perfection... if only you could find the perfect investment. You'd be rich as a Rockefeller, and you'd never worry about money for a single minute. Obviously, perfection doesn't exist in the investment world. But if you want the greatest possible success as an investor, you must know what perfection would be if it did exist and where you'd be most likely to find it. In fact, it's easy to identify the characteristics of an ideal investment. You'd have to find ample amounts of five basic criteria:
Since we know perfection doesn't exist, we don't expect to be able to meet all five criteria in every investment decision. If, for example, we find absolute safety, we would certainly be willing to give up some return. We'll usually have to give up one or two of these guidelines to get enough of the other three or four. But you should always emphasize quality. If there's not enough safety, return, and liquidity, I'll pass.
Taxes are inescapable, but it is possible to grow wealthy without constantly generating taxable events by taking advantage of the fifth criterion, total passivity. Passivity is often a function of how well the other four criteria were met. If you've chosen well, you can sit comfortably and let your money grow with time. If you've chosen poorly, you could lose sleep and money, and find it necessary to make use of the market's perfect liquidity to save what's left of your investment foundation. Recently, for example, I found a company that owns about 800,000 acres of land in Florida, including over a hundred miles of undeveloped beachfront. As far as I can tell, buying shares in this company is as close to a perfect investment (as defined above) as I'm going to get in my lifetime. It has very little debt. And it has all that land... most of which was purchased in the early part of the 20th century for as little as $2 an acre. Today, some of that land has been developed... and has sold for as much as $61 a square foot, or $2.7 million per acre. Since the land is carried on the books at early 20th century prices, I don't even care if I buy the shares today and the company shuts down tomorrow. The land is easily worth four times what the company trades for in the stock market today. So there's very little risk in buying today.
Add the liquidity, tax efficiency, and passivity of a buy-and-hold NYSE-traded stock, and you have something that looks a lot like the definition of a perfect investment. Keep this example - and these five criteria - in mind the next time you're putting money to work, and you'll always make great investments. Good investing, Dan Market NotesWE WROTE IT. DID YOU BUY IT? On February 12, we wrote: "We're not quite there yet when it comes to [making a trade in] the Japanese yen. The trend is still down. But I believe we're close." Then on February 27, we reiterated our stance. "Japanese Big Macs are among the cheapest in the world, and everyone thinks the yen has to keep falling..." we wrote. "It's probably time to buy." The next day, China stocks crashed, the Dow plummeted 4%, and the yen shot through the roof. The chart below shows it most clearly. The New Zealand dollar/Japanese yen cross has been one of the hottest carry trade currency pairs over the last few years. Investors have borrowed mountains of low-yielding yen to invest in high-yielding New Zealand dollars. Was our timing lucky? Absolutely. But our fundamental analysis of the situation looks good and now that we have the makings of an up-trend, we're even more bullish on the Japanese yen. - Tom Dyson |
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