The Quality Investor

[Jamie]

Originally posted by Aceyducey
Jamie,

I've never said I'm not investing to make money

Aceyducey

Sorry, but didnt you say in your previous post:

Ultimately I don't invest to earn money

Not sure, but that seems quite a paradox to me

Here's a thought:
Most investors don't invest in cash.

Why is this if cash is the aim of investment?

It's because there are many things more valuable than cash - thus investing isn't simply about money, it's about what you do with it.

True... but dont those who invest in property and/or shares have to liquify their holdings to indulge their "lifestyles"? Arent you now muddying the waters by comparing "cash" and "money"?

Equity in any investment vehicle cant fund your lifestyle... doesnt it all have to be converted to "cash" at some stage?

Jamie

 

[Bill.L]

Hi all,

We can JUSTIFY the final results all we like with whom knew what at the time of original purchase of an asset. However it changes nought the final result of the profit(cap gain) made. Someone is a winner and it is at the expense of some other party, either whom you purchased the asset from, or whom you sold the asset to, or both.

As an investor (for cap gain) you have to come to terms with this and accept that some other people will lose out at your expense. If you can't come to terms with this, then you will be held back in your investments physchologically, probably subconsciously.(My god they're big words)

If you invest where do you expect your gains will come from?? Whom gives you the physical dollars??? If you really think the market has peaked and it is time to get out , aren't you just selling to the bigger fool??

Enough deep and meaningful,

bye

 

[investor]

Originally posted by XBenX
But I would never feel bad about buying something valuable for a nominal price - if the vendor doesnt know the true value and accept the price you pay them... bad luck....thats the way a market works...failure of the free market system no1 - imperfect information leads to price distortion...its just a fact of life

You ruthless b*****d

Hi again

I have to agree with Bill.L, Jamie and of course XBenX here.

Aceyducey let's consider that painting as an example.

XBenX found the painting being sold for $10. He correctly identified it as being a Rembrandt and he knows that it's worth $10,000,000. Now what does he do ?

If he follows your rules :

I'd rate the important skills as:
Honesty (particularly with yourself)
Integrity
Delegation
Relationship management
Sense of humour

1. Honesty : Well he is going to fail that one miserably, because if he doesn't tell the seller what he knows he is not being honest.

2. Integrity: Well he is going to fail that one too, because it would not be ethical to buy it.

3. He will pass delegation and relationship management because he will pay the $10 with a smile.

4. He will certainly have a sense of humour as he walks away with the painting.

Now according to your rules XBenX should not buy the painting. However he does.

So if it was you, you would have not bought the painting and you would have left or you would have told the seller it's true value.

XBenX however bought the painting and sold it for $10,000,000.

Who therefore is the better investor ?

I would say XBenX is because he has $10,000,000 and you have $0

This is just an extreme example of how your rules can fail in investing. Everytime a property investor finds a bargain and buys it, where the vendors have underestimated the value of the property they are selling, they are breaking your first 2 rules. Everytime an investor sells a property without totally disclosing all it's negative aspects (and I've never seen that done in an add) they are again breaking your first 2 rules.

The only time that I would feel uncomfortable would be if I knew that the painting was a Rembrandt when I bought it for $10.00.

Macca, so you would feel uncomfortable but you would still buy it for $10.
Your uncomfortable feeling comes from the fact that it would be dishonest and unethical to buy it but it would be a good investment to do so.

What if you found a property being sold by an old couple for 200K when you know the market value of it is 500K. Would you turn down the deal ?

Regards

Investor

PS. I too am enjoying the debate

 

[ShaunW]

Hi people,
Very interesting discussion. However it seems to be fueled by two certain mindsets - that of 'not enough' and competition.
By this I mean if I make a profit it is at the expense of someone else (ie there is X money available, and if I want more, he has to have less), and my deal-making/negotiating abilities are used to beat the person I'm dealing with.
Having studied management I've seen first hand that greater deals and bigger profits are made in a cooperative atmosphere where there is the idea of abundant wealth (the old win-win and I'll scratch your back if you scratch mine).
Having said that, here is the disclaimer - this is to me entirely theory when applied to the investing world, as I don't even have a ppor.
Once I get back to Oz I'll be delving into Lease Options as my prefered wealth creation strategy. I see this as both cooperative (I'm providing a home to someone who wants it, and who is willing to pay my premium for the right to own in the future) and abundant (I create my profit before I actually sell - I decide how much capital gain I will make- thus I create my own profit, and no-one is taken advantage of, as my buyer agrees to that).
And the way I will source my properties will also be cooperative - my tenant/buyers choosing their home to a set value, finding tired landlords, helping pre-foreclosure 'sufferers', etc (thats the theory anyway.)
I hope this reads the way I'm thinking, and that it provides an interesting branch for discussion.
Cheers
ShaunW

 

[Tibor]

Hi,

Very interesring and enjoyable thread. While I am learning a lot reading different (and for the individual morally justifiable views)
let me put up a hyphotetical (or real) situation.

I am in trouble. Lost my job, no money left, I have to sell a property (irrelevant whether it is my 'HOME' or an 'investment' property), otherwise the bank will (financial insitutions have a bit less moral and much more ruthlessness in the name of the 'SHAREHOLDERS INTEREST').

The market has also turned a bit south and I need a quick sale.

Who will offer me the 'real' (it is my perception only as I am loosing on it bit time) value for my property?

My best bet (very safely) NO ONE.

Why?

My perception is unreal. The 'real' value of my property will be
the price a willing buyer is going to pay to a willing (or unwilling in my case) seller in a point in time.

Obviously from the willing buyers point of view it could be a real bargain, for me a real loss.

We even call the the smart money, investor, whetever, it does not alter the underlying fact. We may even 'justify' it by telling that if the willing buyer would not have bought at that price the bank would have sold for even less (and hopefully covered theri own exposure), so I was 'helped'. Was I really helped?

The point (opinion) I am trying to make is that this is not wrong or right. I call it REALITY IN LIFE.

Now, to make it even more interesting.

I might even get lucky and a very charitable person will help me out by lending me the money at no or very low interest to help me get back to my feet. This is fantastic for me.

The only question (and I will not ask) how this person got there to be able to be so charitable with his/her/it fellow man?

The person my inherited a fortune, won on the lotto or casino big time, saved during their entire life, whatever. Most likely the person made some money (reasonable amount to afford to be charitable) by buying other people's properties as a willing buyer (smart money) at VERY LOW PRICES, under their owner's 'REAL' value or foreclosures, etc. Would it bother me???? Obviously not, as my family will be helped to have roof over their head.

The other point (opinion) here would be to be able to be charitable big time (here flies the moral high) is to have enough dough to afford big time charity, which needs somehow to be made.

During the process in spite of our best intentions we WILL
make some decisions which from the other person's point of view will not be fair or a win.

For example it could be that a rent raise to market rate will push a family out of their accomodation to a much worse situation. We usually do not know it, and not even sure we would want to know. Will it stop us to raise the rent? Maybe temporarely (if we know the situation), but not indefinitely.


Tibor

 

[Aceyducey]

All I can say for the Rembrandt example is that if the painting was on sale for $10 the seller clearly has no idea of what they have.

If I knew at the time of purchase that the picture was a Rembrandt I'd tell the person, gently make it clear that they need help getting a true price for the painting & offer to act as their sales agent for 20% of the sales price. I would bear all selling costs.

If, instead, I found out subsequent to purchase that the painting was a Rembrandt I would sell it (don't want the expense of security to protect a painting) and send a cheque for 20% of the price to the person who sold it to me

In either case I have made an absurd return on a $10 investment - plenty to keep me happy & the next time that person was thinking of selling a painting they would come & talk to me.

20% of multiple deals is better than 100% of one (and people ALWAYS find out when you screw them).

Some of you might find it better to maximise a single deal than to make many deals, but I ask you: how many deals does it take to become a Packer?

You have to treat fairly with people if you want to go on doing business....bad deals get talked about, good deals get referrals.


Investing is a business like any other.

If I am prepared to hold onto and/or develop an asset to increase it's value I have no compuncture about paying what the asset (a property) is currently worth, investing my own capital & then realising a profit.

After all, the person selling me the property chose not to do this work, either because they had to liquidate their asset (to move the capital elsewhere) or were unwilling to invest further capital in the asset (had their capital committed elsewhere - ie on buying food ).

And I get to sleep at night, enjoy my work AND build up a network of potential repeat business.

I contend that any good investment, to qualify as good, must fulfil hurdles of both profitability & ethicality. Only in this way can you build a business.

Anyone heard the saying: What comes around goes around? - It's really true

Great post Shawn! While you probably won't get the maximum return on every deal, you'll get a lot of deals & every financier-type knows that deal flow is most important - can't make profits when there are no deals.

Cheers,

Aceyducey

 

[Bill.L]

Hi all,

Shaun+Acey, While I admire your noble intentions, I come back to the point of justification to oneself. Even if you agree on terms with another party as to what is purchased and when, and both are willing participants, your profit is their lack of gain. If you negotiate a better deal in a purchase, it is still at the other parties expense.

Using Kerry Packer as an example. He sold channel 9 to Alan Bond for one billion dollars. Both parties thought they had a good deal. Bond goes belly up because of stockmarket crash, Packer repurchases 9 from administrators for $200,000,000.
In both transactions Packer was doing Bond shareholders a favour but times and circumstances had changed. It didn't matter, one party was a winner at the others expense. If you had been Packer on that occassion, would you agree to purchase back 9 for the original billion dollars, even though it's value now was only $200,000,000???

Interesting discussion

bye

 

[Aceyducey]

I would have bought it back at the $200M figure. That's what it was worth. Not my fault all that value was lost since I sold it.

Don't confuse being ethical within yourself with being responsible for other people.

People make bad decisions all the time. It's not my place to fix their lives. I just don't deliberately structure deals in such a way as to hurt other people.

If someone came to you with a bad business deal which would give you a huge upfront profit but would end in the destruction of their business, would you take it?

I wouldn't - I'd work with them to develop a deal that keeps them in business & happy and delivers me lower initial profits but greater profits over time - Win-win = long-term success.

Just because you buy a property, screwing the vendor, doesn't mean you may not deal with that vendor again in the future (perhaps in another capacity)..and you've burnt a bridge that could cost you much more in the long-term.

Cheers,

Aceyducey

 

[investor]

Originally posted by Aceyducey

If I knew at the time of purchase that the picture was a Rembrandt I'd tell the person, gently make it clear that they need help getting a true price for the painting & offer to act as their sales agent for 20% of the sales price. I would bear all selling costs.

If, instead, I found out subsequent to purchase that the painting was a Rembrandt I would sell it (don't want the expense of security to protect a painting) and send a cheque for 20% of the price to the person who sold it to me

Hi Aceyducey

Firstly there is no guarantee that the owner of the painting will accept your fee of 20% for you to sell them the painting after you have told them what it's worth. They may even not want you to sell it at all. Are you willing to take that chance ?

Secondly I'm am very curious as to why you are willing to accept a 20% commission only, and let the owner keep 80%, if you tell them about the painting before hand but you are willing to keep 80% and only give them 20% of the profits when you sell the painting after you bought it and found out it was a Rembrandt ?

Is there are reason why you chose to keep 80% and not 20% if you bought the painting and then found out it was a rembrandt ?

I just found that interesting

Regards

Investor

 

[Aceyducey]

To answer your points Investor,

Originally posted by investor
Firstly there is no guarantee that the owner of the painting will accept your fee of 20% for you to sell them the painting after you have told them what it's worth. They may even not want you to sell it at all. Are you willing to take that chance?

Yes I am willing to take the chance. I'm confident that I could convince them that I could do a better job of getting maximum price than they could & I've already demonstrated that I'm highly trustworthy

Secondly I'm am very curious as to why you are willing to accept a 20% commission only, and let the owner keep 80%, if you tell them about the painting before hand but you are willing to keep 80% and only give them 20% of the profits when you sell the painting after you bought it and found out it was a Rembrandt ?

If I knew the value of the painting then it would have been unethical of me to buy it for $10 when the owner patently had no idea of what they had. In this case I am acting only as an agent for the vendor & therefore the fee is lower.

If I had no idea of the value of the painting either (quite likely, I'm not into paintings) and bought it in good faith for $10, I do not feel it is then unethical to make the 80% profit. However, I feel that it IS unethical to take 100%. After I give that 20% to the person I bought it from I would then talk to them about what other paintings they had (or their friends may have) - again I've built some trust by being honest & laid the groundwork for more profit besides feeling happy that I have not ripped anyone off.

Being ethical works very nicely with enlightened self interest I have found

Cheers,

Aceyducey

 

[investor]

Originally posted by Aceyducey
If I had no idea of the value of the painting either (quite likely, I'm not into paintings) and bought it in good faith for $10, I do not feel it is then unethical to make the 80% profit. However, I feel that it IS unethical to take 100%. After I give that 20% to the person I bought it from I would then talk to them about what other paintings they had (or their friends may have) - again I've built some trust by being honest & laid the groundwork for more profit besides feeling happy that I have not ripped anyone off.

Being ethical works very nicely with enlightened self interest I have found

Hi Aceyducey

One can argue that it is unethical for you to sell the painting once you discovered it's true worth, and that it's unethical of you, if you don't return it immediately to it's owner and explain to him the grave mistake he just made.
One can argue that's it's unethical of you to make an $8Mil profit out of $10 at the expense of someone not as knowledgeable as yourself.

So another investor may consider you as being unethical for not returning the painting.

Would you agree then that the level of ethics differs between investors ?
and what you may consider ethical another investor may not ?

I would have bought it back at the $200M figure. That's what it was worth.

Well then why don't you pay 10Mil (or close to it) for the painting as well ?
That's what the painting is worth.

Regards

Investor

 

[D.T.]

Hi all,

It seems to me that Ace claims that investing is not just about money, its about one's self perception too. IF this is true, then I disagree. Investing IS about the money, if it wasnt we wouldn't be doing it - we'd be at our PAYE jobs.

To me, if someone is ignorant enough to have something (IP, rembrandt, etc etc) selling 400k under market value than that is their problem. Sure, they might call me a bastard if they find out I sold it the day after for 400k more than i bought it for, but I'm the one who is rewarded with a holiday/car/time with family/etc for being on my toes and spotting the deal, first.

-Just a thought

Dave

 

[Aceyducey]

Investor,

I note that you've shifted from providing your views to nitpicking mine - I'll take that as meaning that you now agree with my viewpoint and have realised you didn't have a leg to stand on.

Specifically addressing your point on shadings:

Originally posted by investor
Would you agree then that the level of ethics differs between investors ?
and what you may consider ethical another investor may not ?

Of course ethics varies by the person. Look around you, you'll find that everyone has slightly different beliefs on what is right & wrong. That's one of the reasons society is compelled to develop laws which precisely set out the boundaries (another is control).

It's always possible to find someone who believes they are more ethical than you - that's not the measure I apply.

I apply, as I had said in a variety of ways in previous posts, the level of ethicalness that makes me feel comfortable in myself that others are not being hurt by my actions.

I suggest you read some books by ethicists like Peter Singer - may open your eyes to the different schools of ethics & how well-thought out & structured they are


Dave,

Life is about perception - half full/half empty, etc. Investing is about choice. Choice is driven by perception (you only see the choices that you choose/have been conditioned to see).

Don't confuse the outcome (money) with the choice of activity (investing).

You can earn a lot of money working in a PAYE job (millions/year) - so why invest? Because you are making a choice to work for a particular lifestyle.

I'm glad that you aren't worried about being called a bastard - but what if the person selling the undervalued IP was a member of your family or a friend - would you still feel it was ethical to take the profit?

Now, is it then OK to take the profit if the someone was a person who might become family (the long-term boyfriend of your daughter or sister for example)? How about an acquaintance that you work with regularly?

Where's your ethical line?

Cheers,

Aceducey

 

[Bill.L]

Hi all,

C'mon guys, lets not throw insults around as it's not ethical , in what is just an intelectual discussion.

My understanding of my investing is that I do it to make money. I realise that the money comes from someone else. At the same time I try to be as "ethical" as the situation allows. Of course this will mean different things to different people.

In my original thinking on the Rembrandt from the garage sale, the concept was that I just thought it was a pretty picture and hung it on my wall for a couple of years before a friend in the know told me it was a Rembrandt. In this situation the 100% ethical approach would be to take it back to the original owner, (even if you had to search for them as they changed address). The 100% bastard(ruthless) approach would be to sell it to your trust for $10 then sell it at sotherbys(by hopefully saving some CGT) ignoring your friend who told you about it's value, and laughing all the way to the bank about the schmuck who didn't know what he sold.

As this was a gift from the luck gods, and not an intentional investment, I would probably give the original owner 50% of the profit after CGT. I would also buy a very decent present for my friend who bought the facts of the painting to my attention.

When I am purchasing a property for investment, and purchase something that goes up 50% p/a because of a change in zoning, asthetics etc, I don't feel that I owe the previous owner anything. He had as much information as me and circumstances changed. My guess was better than his.

However despite all of my ramblings above, it doesn't change the FACT that I gained at someone elses expense in both cases.

bye

 

[JoannaK]

I've been biting my tounge on this one, but i really have to comment now.

Why on earth would you give the original owner of the Rembrant anything? He offered to sell it for $10. If he didn't know the real value, it's his problem. you haven't deliberately shafted anyone here, you are seizing an opportunity. Big difference.

What if you stumbled across a property that was listed $100,000 below market value??? Would you say to the owner or the silly agent..."ummm,,,,,you've under-listed this property...i'll pay $100,000 more, because that's the true market value and I want my conscience to be intact."?

My guess is NO. You'd snap up that property so fast it wouldn't be funny. And on top of that, you'd be laughing and bragging at what a catch you just bought.

Again, you're not shafting anyone here, you are seizing an opportunity. Opportunity knocks, you open the door.

You're in it to make money plain and simple....if someone else is going to be stupid - that's their problem, not yours.

 

[Aceyducey]

Originally posted by JoannaK
What if you stumbled across a property that was listed $100,000 below market value??? Would you say to the owner or the silly agent..."ummm,,,,,you've under-listed this property...i'll pay $100,000 more, because that's the true market value and I want my conscience to be intact."?

My guess is NO. You'd snap up that property so fast it wouldn't be funny. And on top of that, you'd be laughing and bragging at what a catch you just bought.

JoannaK,

What if that 'stupid' person was your mum?

Is it then ethical to apply different rules because you happen to be genetically related?

If so, keep in mind we're all genetically related - it's just the degree. What degree of separation is sufficient to make you happy to snap up this deal?

Or what if you have the prospect of doing millions of dollars of business with that person in future? How would they feel about working with you in future if they found out that you were not honest with them here? What would it cost you?

What degree of self interest is sufficient to make you choose to tell them what a fair price is?

That's what defines the ethics debate.

Cheers,

Aceyducey

 

[XBenX]

Ive read the debate... personally I think its a mute point... but Ive read it with interest regarding other ppls ideas....

The quote that disturbed me was :

"You'll learn with more life experience."

An example - I often get older family friends telling me about the economy and insurance... I listen to their POV and rebutt...their stock reply is... (you guessed it) "You'll learn with more life experience." its the biggest cop out in the world....essentially it is - your wrong, im right - I dont need to justify myself to you.. im older and more experienced obviously Im right (nevermind the fact the young "inexperienced" person has undergrad postgrad and industry training....)

Please ppl - age and experience is great.... but its not everything... the amount of problems Ive encounted because im young and obviously inexperienced is astounding.

The arrogance on this forum is unbelievable....it seems everything is a big dick contest... we seem to forget we are ALL small fish !!!

<end rant> ahhh thats better

 

[JoannaK]

if it was my mum then she's stupid, just because she's related doesn't mean the rules are changed.

If it was me, then I'd be stupid!

If I listed a property on the market, it would be MY responsiblity to ensure that it is listed at an appropriate market price.

If i agree to list $100,000 under market (knowingly or otherwise) - then it is MY stupidity....I wouldn't list it $100,000 under market unless I was happy to get that price anyway. So, if I knowingly or otherwise sold a property that turned out to be $100,000 undermarket, that is the price i was happy to receive....so why would that influence any other potential business opportunity with that person?

It is their responsiblity to protect themselves - we are not anyone's saviours here!

 

[Aceyducey]

Originally posted by JoannaK
if it was my mum then she's stupid, just because she's related doesn't mean the rules are changed.

Joanna,

I guess that your mum doesn't read the forum


XbenX,

Glad you feel better after that rant, I find them very therapeutic too My 'life experience' comment has nothing to do with age & was slightly tongue in cheek anyway

And remember this is the internet - no-one knows if you have a dick - so there's not much point in comparing them

Cheers,

Aceyducey

 

[Bill.L]

Hi

Looks like we are all in agreement here Its just the definition of investor that needs to be looked at.

If you think that the best investor= the one who makes the most money, Then Packer,Murdoch and ruthlessness win out.

If you think that the best investor= the one who makes everyone else win and not make the most money themselves, then the salvos and Tim Costello(not Peter) win out.

I'm just in the middle trying to make my bit.

bye