How You Can Buy Great Investments at Great Prices

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Warren Buffet briefly explains that the late Charlie Munger taught him to avoid buying good companies at great prices and instead purchase great companies at fair prices. In his recent letter to shareholders, Buffet gives credit to his late partner for convincing him to change his pattern of thinking.

But I am left wondering why Buffet does not discuss the need to buy great companies at great prices.

It may be that they are very difficult to find. Buffet talks about problems moving the needle of investment success because his company is so large and has so much cash.

Buying a small micro-cap company and watching it double or triple in price will do little to Buffet's earnings.

But for you and me that is not a problem. We don’t have billions in the bank in cash nor hundreds of billions of investments.

So, my thinking is to ask what is stopping us from buying Great Investments at Great prices?

The answer, after my analysis of looking at what has stopped me in the past, has been a lack of patience.

Years ago, I thought I needed to do deals often to be able to move forward, but that is far from the truth.

Now, I’m likely to ignore 1,000 opportunities to find one thing that requires deep digging to see if an investment is worthy.

I’ve discussed a few of them here in the newsletter and others on the podcast. They are rare but still more common than you think.

The other psychological principle important to remember outside of patience when finding great investments for great prices is to keep your emotions in check. Following the crowd is hard-wired into all our brains. We buy when we should not and sell when we should not.

Here are some things to remember to help you take care of patience and follow the crowd's emotions.

1. Have a long-term goal in mind. Ten years, twenty years, or even 7^th generation investing matters.

2. Do the inverse on all investments first. What are all the things that will make this fail? Practice by watching many of the shows out there where pitches are made by inventors and entrepreneurs. What will make this fancy new recycling business fail? I rarely find one that I would even want to look at closely, when I do I go down and believe it or not then invest at times. Some work, some don’t but it’s rare for me to find one that is worth looking into.

3. If you don’t like making waves, or upsetting a real estate agent, you can’t be an investor in property. Something is selling for $750,000 you offer $350,000 because that is what you believe the value is. 99% of the time you won’t get a counteroffer and the seller’s agent will be “insulted”. Remember regardless of your number the agent MUST present your offer to the seller. It’s not a lowball offer. It’s a value-based offer. Don’t be afraid to explain how you came up with that number. The valuation for tax purposes is one. The ratio of income to price is another. Something bringing in $35,000 does not have more value than $350,000 in my opinion. Often it is less than that.

Purchasing great investments at great prices is an absolute rush. It is also well within your grasp. If you can be patient and not follow the crowd.

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