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Before You Buy... Is It Great?

By Dr. Steve Sjuggerud
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:

“I guess I had too much inclination originally to buy mediocre, or worse than mediocre, businesses at a very cheap price. That works OK, in the sense that you never lose money; but you never end up with a great business that way either.

So that emphasis has shifted over the years. We don't want to buy the worst furniture store in town at the cheapest price; we want to buy the best one at a fair price.

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.) 

Later, we made big money in things as diverse as mortgage REITs and timberland, all by sticking with the idea of buying great assets at fair prices.  Specifically, timberland giant Rayonier is now up about 90% from when I first recommended it in January of 2004.

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,


Market Notes


Gold, silver, copper, zinc, palladium
Nikkei 225 Index… Japanese stocks
Starbucks (SBUX)… coffee shops
Rayonier (RYN)… timber
Nasdaq… tech stocks hit 5-year high
Russell 2000 Growth Index… small cap growth stocks
Schnitzer Steel (SCHN)… scrap metal
PetroChina (PTR)… China’s oil giant
10-year Treasury yields… a breakout in interest rates
Crude Oil… seven-week high
E*TRADE (ET)… up 100% in the last seven months


Frontline (FRO)… woes continue for oil shipping companies
iShares Lehman 20+ Year Bond Fund (TLT)… rising rates hammer ETF

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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