Recently, I was having this remarkable conversation about risk and returns with a university of mine and we were discussing the fastest returns that we had had, respectively. The one my university offered was quite remarkable, so I thought I’d tell you about it here.
Mark was selling his car and had a sign on the car parked at his house. Within 10 minutes of putting the car up for sale, a random lady came by and asked about the little four cylinder car, she had a v8 and was tired of gas bills and was thinking of buying a smaller car.
Her car was a very handsome Chrysler and was easily worth $ 2000, but she just didn’t want it anymore and told Mark she would take just about anything for it. Mark was asking $ 600 for his fast little two doors and they came up with a bargain.
In 10 minutes he had sold his car and now he had another car to sell for $ 1,200 to $ 1,500, which was easily worth $ 2,000. He sold it just a week later for $ 1,750.
This story serves to illustrate a point about investing. You make a profit when you buy, not when you sell. This relevant point makes it clear that you make your decisions and your profits before you buy, because after you have bought, it is too late to do anything about the price you paid. Mark knew that there was no risk associated with this deal and even less risk of not selling, the reason being because he paid so little for the $ 2000 car. He could afford to sell it for $ 1200 and still make double profit. 100% with him.