Price Is What You Pay. Value Is What You Get.
“Price Is What You Pay. Value Is What You Get”. This is one of my favorite quotes by Warren Buffett. In other words, it sums up all investing and business.
What I do
So all I do is look for things to buy at the right price. This allows me to realize the value. The longer it takes to recognize the true value depends on your purchase price. My two best buys for 2020 in the stock market are GM and Ford. GM is up YTD for me 122.40% and Ford 101.75%. Both were purchased on March 24, 2020. So the price I paid is well below the value I’ve received.
My line of work
I buy undervalued assets for a price. So the value is when I buy it. The market determines if I was right or wrong. The rest depends on when I sell assuming I ever do. Value is recognized using an intrinsic value model which means the net income a business produced over 10 years or more. You can also use the lifetime of the asset and discount it by attaching the current Government Bond rate.
In the case of Ford and GM stock purchases, I still own both. Therefore in my line of work seeking out real undervalued assets in relation to the market is all I do.
Asset Recovery & Real Estate
In my asset recovery business http://hemispherestrade.com/ I concentrate on technology and real estate assets. My personal portfolio is public companies. Therefore my focus is on price and value. When I buy I should be purchasing well below the market value. Doesn’t matter if it’s inventory assets for my recovery business or real estate assets around the world.
I am now building real estate in Ethiopia where my family is the general contractor. So this asset will be held forever since the land has been in the family for almost 75 years. The same with another real estate we own there. Therefore the value of the existing real estate has doubled in the last 4 years and will probably continue along that path over the next 4.
The purchase price or cost of goods
So my entry purchase is what makes me money. If I buy too high then I may never realize any profit or it will take a lot longer.
Rules when buying assets.
- Never overpay based on market values.
- Market values are sometimes wrong in illiquid markets.
- The market values are often less wrong in liquid markets like the stock market
- Competition drives up prices, so stay out of auctions and bidding wars.
- If you made a mistake get out fast
- Don’t listen to market forecasters.
- Evaluate your purchase based on the numbers not what people say
- Seek advice from people that know more than you when applicable.
- Don’t’ rush in. Better to get all the facts.
NOTE Liquid vs Illiquid markets
The liquid market is the stock market for example. Therefore any market where you can buy and sell something at once. An illiquid market is everything that isn’t liquid. So real estate, cars, inventories, etc.
Seek advice from those that know
Yesterday we had a 600 iPhone purchase but didn’t quite understand the terms in the listing. We know the seller but not exactly what his description was saying. So I contacted another supplier and asked what was meant and he explained in detail.
Therefore this additional information changed the price we were considering. So the original $26 price dropped to $10 after the additional information. Therefore no deal was made.
“The difference between successful people and really successful people,” he says, “is that really successful people say no to almost everything.” Warren Buffett
Just say no
I say no to almost everything. Therefore according to Warren Buffett, I am a really successful person because I say no to almost everything, no matter who is selling it.
Great deals don’t happen often but they do happen during the course of a year or 2. Being patient helps when investing. Therefore patience is one of the primary keys to wealth building. Also, the size of your bet when you see a good deal.
The size of your bet.
As in poker, the size of your bet when you’re right determines how much you’ll make. It’s similar to going all in. This the key to making big money when the price is right. Value is after you buy. In stock, then the price will rise. In other assets, it’s when you sell for cash.
Great investment opportunities come along once in a while and recognizing them and going all-in is how you make big money. A case in point is my Ford and GM investments this year. So I’m up to over 100% on both since my March purchase but I didn’t go all in. Why didn’t I when I knew these companies were way undervalued and that COVID would end? The answer is I wasn’t fully committed to putting hundreds of thousands of dollars into these companies.
In other words, my trust and risk factor didn’t allow me to move on to these two companies. My trust and Risk factor told me to keep reinvesting in my own small asset recovery business, which is what I ended up doing.
Did I make a mistake in not piling into Ford and GM this year? The answer is in hindsight yes, but who knows what the future will bring. So I took the less risky move of reinvesting in my asset recovery business and not in these two public companies. To me, the other less risky move was to stay invested in Apple, which I still own today.
Invest in yourself
My long-term investments are asset recovery business, which makes money almost every day, and real estate investments which are long-term holds with appreciation and income. You can do the same thing, but patience and wealth take time. Therefore as long as I see progress, growth, and net income, not gross income alone, then I am moving in the right direction.
How you can create income and wealth
My top picks on how you can create income and wealth.
- Decide on what you can do to make money.
- Create a business around this you own 100% and build on it.
- Income and wealth happen over time, so be patient and make changes
- If it isn’t working, adjust, assuming your business model is sound in the first place.
- Use Real Estate as a long term wealth building investment.
- Spend less, save more, reinvest.
- Take action, inaction get’s you nowhere
What does all its have to do with Price is what you pay, value is what you get?
The price you pay for anything reflects the value you get. For example, in my asset recovery business, we just bought 500 Microsoft Surface Pro 3,4, & 5 pens. The price we paid was $18 each. The value we will receive is $45 to $50 each. Therefore we should make at least 100% value on our investment in this example.
Income is $45 on the above. Our cost is $18, our gross income is $45-$18=$27 X 500 pens = $13,500 gross profit. This is the value we received. Now subtract and other 15% in expenses related to buying and selling this product, and subtract monthly expenses and you end up with about $18 profit on each unit, or $9,000 to $10,000 net profit.
Real Estate example
The land plus the cost of construction on my Ethiopian project 4 years ago was $125,000 paid for in cash. So this also included prepaying 5 years in taxes. Our income on this property is zero because the family lives there for free, but the value of the property has doubled to over $250,000.
Above all the family doesn’t need any more cash to live because their living expenses for rent are zero, thus giving them more money and the need for less from us.
The price is $125,000, the value is $250,000. Not a bad return over 4 years and the value keeps going up.
The price I pay for things should be reflected in the profit and income. In addition, I should see appreciation too. Businesses that you own and control 100% should reflect this as well. So should your marketable securities purchased in publicly traded companies. To become rich takes time to recognize the value based on the purchase price. Therefore recognized value happens faster when you purchase at the right price. Takes longer when you overpay.I think now you all have an idea of Price Is What You Pay. Value Is What You Get.
Mike Addis, Carlsbad, California all rights reserved.