The 5 Keys To Finding The "Perfect" Investment

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.

The five criteria are intuitive and easy to grasp. Anyone who's ever had so much as a passbook savings account knows that low rates of return make you feel like you're getting ripped off, and high rates of return are worth a little effort and risk.

Complete safety is something that does not exist on Earth. But when you find an investment that approaches it, you've found something that carries a high value. Liquidity is the easiest "perfect" characteristic to find. It's available in stocks, bonds, commodity futures, and other publicly traded financial instruments.

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.

As long as you've chosen well, passivity is not so difficult. When it comes to your investment portfolio, the old adage holds: If it ain't broke, you need to have the peace of mind and, yes, the discipline, not to fix it.

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.

Since the land is carried at such a low cost, it's unlikely that it could ever fall in price far enough to have any type of negative impact on the company's high returns.

That's a high return and safety.

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