Right after high school and through college, I used to buy & sell cars. I would pour over classified ads looking for cars at discounted prices. Most of the time they were fixer uppers, but I knew that after some work I could sell it for a similar price to recent transactions of similar cars.
I bought my first car for a few hundred dollars, fixed some small parts, cleaned it up, listed an ad, and sold at a higher few hundred dollars higher than were I bought it. Given the return on my investment, I was hooked. I went on to sell more cars and eventually got my dealers license, moving up to bigger auctions where you’re given a couple of hours to actually test the cars, weigh your input costs, while keeping in mind what you think can sell it for in a reasonable amount of time.
There were some great investments and there were some losers.
I once bought a Honda based on a few pictures. I know what you are thinking, but it looked great and Honda’s are always so reliable, right? I thought I could buy it for a couple thousand and sell it for a few hundred-dollar profit quickly thereafter. Wrong. The transmission slipped. Turns out that part failed in this particular model of Honda made in a particular year range. That made supply low and demand high and the transmission itself would cost a couple thousand dollars. Welp. I debated my options (fixing it or maybe parting out the car), but in the end took it to an auction and sold it for a loss.
There was also a Jeep I found at auction that wouldn’t drive. On top of that, it was a complete mess inside (I’m talking nasty). No one would touch it. Since it was listed as immobile, they didn’t even drive it through the auction, only had it sitting in the parking lot. However, I noted a simple piece wasn’t actually hooked up that was making the car immobile. Most people probably quickly assumed a fix would cost what they could sell it for (much like my Honda experience), and so no one bid. I bid $300, fixed the part, and sold it for a few thousand in a short period of time.
The point of this story is you have to do your homework. Oftentimes you think you know something well, skip steps in your diligence process, and it goes against you. It’s through hard work and diligence where you find a left-for-dead investment that ends up being your best winner.
Investing can be an emotional game (which is why its good I didn’t buy and sell muscle cars!), but in the end you have to stay grounded. That’s one reason why I personally stay away from investments where valuations imply astronomical growth for the foreseeable future. It’s too easy to overestimate what you think will happen in the future and lose sight of fair value.
In sum, I’ve always been a value investor. I try to find investments that people have left behind, don’t want to do their homework on, or are hidden gems.
What is your philosophy or approach?