Automotive Investment Principles
Its amazing how investing in the stock market is similar to investing in used cars. I am fascinated with Warren Buffett. I read everything I can get my hands on about him. He is the master stock market investor.
Warren's wisdom about stock investing can be directly related to trading cars for a living. Lets explore four beliefs he has about investing and how they apply to the car business.
1. Circle of Competence
Its important to know what you know and more importantly what you don't know. Invest in the things you know and ignore the rest.
I get asked, quite often, "George, what kind of cars should I buy?". My basic response for beginners is to buy what you know. If you have driven honda's your whole life, thats probably a good place to start. You know how they ride, what noises to listen for, what the common problems are, .... MUCH better than a guy who has only driven Subarus. Right?
My second suggestion is to always try to expand your circle of competence.
2. Margin of Safety
Always buy with a margin of safety. Never pay too much. Your rate of return on your investment will be determined by the price you pay. Never pay too much because there are always things you don't know about the car. SO use that margin of safety to work in your favor.
If the car is worth $5,000, don't pay $5500 just to own it. You see it is totally possible you don't know everything about the car. In fact, I bet you don't know everything about the car. There is an associated risk with buying any car or truck. There might be unknown repairs that need to be made once you get it to your mechanic. If you bought the car with a margin of safety, say $4500, you have $500 you can use for the unexpected repairs. OR, maybe, it will take longer to sell the car than you imagined and you will need that margin of safety for more advertising.
Remember: Buy with a margin of safety.
3. Mr Market
Mr Market is your paranoid schizophrenic partner in the car business (or more directly he might be your wholesaler, your local auction, or just the marketplace in general - in Warren's case, its the stock market).
Everyday Mr Market, with no thought or reason, makes available cars that can be bought at various prices. You can either take Mr Market up on his offering price for the car or you can say no & wait for a better deal.
Be mindful that you can always ignore Mr Market and wait for the next car for a better deal!
4.Resource Allocation
Your ultimate power and most critical decision is where to allocate your resources. Your main resource is your time and money. If you buy a car for too much money or one that requires too much work - it drains your resources. Be wise where you allocate your resources.
You are using some resources to buy my study course. Mainly money but also time to learn a new skill - how to buy cars for profit. Its an investment into your knowledge. Its an investment that should yield a fair return. As a side note, if you are trainable, you can learn this business!
Success!!
George Dean
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What is a curbstoner?
How to avoid curbstoners
Unlicensed Dealers Commonly Known as "Curbstoners"
And What You Should Know About Buying a Used Vehicle
What is Curbstoning?
Curbstoning is an unlicensed vehicle deal. A person who sells vehicles on the street or “at the curb” instead of at a dealership location could be “curbstoning.’ Curbstoners may also advertise vehicles in the newspaper classified section.
What are the Risks?
Buying from a curbstoner increases your risk of being unable to transfer a title. A curbstoned sale may masquerade as a “steal” but could actually be a previously wrecked vehicle, one with a “rolled back” odometer, or even a stolen vehicle. Curbstoners do not comply with state or federal laws and any dealings with them are not protected.
How to Spot a Possible Curbstoner?
Not everyone is out to break the law, but if your “great deal” is made with a vast majority of these conditions, look out! There are several “clues” you can look for:
- The license plates are out-of-state, issued temporarily, are dealer tags, or missing altogether.
- The seller admits he/she is a dealer but says it’s a personal vehicle.
- The seller insists on a cash payment.
- The vehicle’s title is not in the seller’s name.
- The seller offers to do the tag and title paperwork.
- The title is recently issued, or the seller refuses to show you the title.
- The seller gives only a pager or cell phone number.
- The same phone number is listed for multiple vehicles in the newspaper or outdoor location.
- The vehicles are for sale by the roadside, in vacant lots, at shopping centers, or in driveways.
- The seller wants to meet at a different location other than his or her residence.
What to Ask?
When you take a look at the vehicle, consider asking these questions of the seller:
Are you the dealer? Why are you selling the car?
Remember, with the exception of private sales, anyone in the business of selling or buying vehicles in the State of Maryland must be licensed. Ask to see the dealer’s license.
Are you the owner of the vehicle? Is the vehicle titled in your name?
The seller of the vehicle must be the owner or co-owner (with the other owner’s permission). Check to see if the names on the title and seller’s driver’s license match. Does the vehicle’s identification number, make, model and year match what is listed on the title?
How long have you owned the vehicle? Did you buy it new?
These questions are important for you to determine if the vehicle has been well taken care of, or if you are looking at a vehicle with a ”shady past!” You can check into the history of the vehicle by researching the Vehicle Identification Number (VIN) on-line under “vehicle history.” A history of auto auctions and/or sales across multiple states may indicate problems. Please note: A fee is charged for each vehicle history report.
What is the mileage now and what was it when you bought the vehicle?
Check the mileage indicated on the title against the odometer. It is important to note that vehicles normally average an accumulation between 12 and 15 thousand miles each year.
You might also want to check the odometer against the mileage of an oil change or other maintenance stickers that can be found on the doorframe, in the glovebox, or under the hood. An odometer with numbers that are misaligned could indicate a possible “rollback.” If the odometer numbers “jiggle” when you strike the dashboard, that is another indication that someone may have tampered with them.
Has there been any major work performed on the vehicle? Has the car had body repairs? Has the vehicle ever had a rust problem or been repainted? If the seller answers yes to any of these questions, ask for any receipts for the work performed on the vehicle.
If possible, have a qualified mechanic thoroughly check the vehicle. Look for paint color that is not evenly spread on the vehicle, check its texture, and whether or not there are any misaligned parts on the body of the vehicle. Check to see if the doors, hood, and trunk open and shut easily. You will want to check the way the tires are worn. If the tires show they have uneven wear and tear on them, this may indicate abuse, poor wheel alignment, or damaged front-end components. You should also check the horn, the radio, the heater, the wipers, and the defoggers. Try the windows and seatbelts. Test the headlights, the taillights, the flashers, the back-up lights, the brake lights, the turn signals, and the parking lights. Check under the hood, and examine for worn hoses, battery leaks, dirty dipstick oil, or dark or burnt smelling transmission fluid.
How has the car been driven? For example, did the seller take the car around town or was it taken on a majority of long trips?
Ask for service and warranty records. You will want to check for excessive brake pedal wear, which would be consistent with high mileage. To check the brakes, ask if you can test drive the vehicle. While you are driving 30 to 40 mph with no one behind you, apply the brakes 3 or 4 times. A consistent pull to the left or to the right will indicate a problem.
What are the vehicle’s best features? What would I need to do to put the vehicle in top shape?
A seller who really has owned the vehicle will be able to answer these questions easily.
Have you had the vehicle inspected!
In most states if you sell 3 or more cars within a 12 month period, you may be considered an unlicensed dealer. This is punishable by a hefty fine ($5000) or up to 1 year in jail in some cases.
Curbstoners, unlike dealers, don't play my any set of rules. Dealers are suppose to make a reasonable guarantee the cars they sell have clear titles and are safe for the road.
George Dean
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