Treasure hunting

One of my favorite things to do is going treasure hunting. Typically, when I say that, most people would assume that would mean digging for buried treasure or taking out a metal detector on the beach or abandoned field. Actually, it isn’t really much more different than that. After all, we are looking for something valuable, which has remained undiscovered so far.

When I go treasure hunting, I look for objects, assets or properties that I think are undervalued or whose value has not yet been fully realized by the market. And if the price is right, I would make an effort to acquire it. Similarly, if I feel that the market price is higher than the fair value of the asset and that the upside potential would take too long to make it worth holding on to, I would sell it and cash in on my treasure.

My favorite place to do my prospecting is in my private space, like my desk in my bedroom or in my office. The best time for me is when I am just relaxing, having time to read the newspapers or surfing the Internet. Other places work equally well for me, like the bar or the veranda of any of the golf clubs I am a member of and just have time by myself to leisurely smoke a cigar with some scotch, single malt or brandy.

I do recall my earliest efforts in treasure hunting when I was still in college and would make money buying and selling cars. I would buy cars that were being sold cheaply that had something off with it like a bump, bad upholstery or some mechanical problem, get it all fixed and sell it at a significant profit.

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The big question is how do you know if something is undervalued and would have an upside potential? The market price or what the property is being bought and sold for is not necessarily the true value. As an example, I recall about 20 years ago when gold was under $300 an ounce and the value of American double eagle gold coins were practically the same as their value in gold content, that there was no or not much premium given on the numismatic value of the coin. To me it was a no-brainer, so I kept on buying gold coins almost every week. With the current price of gold at over $1,322 an ounce, I guess I did alright.  Plus, I do get the benefit of owning nice gold coins to look at!

Country club shares are also something I like prospecting in. Typically, I would look at the real-estate value of the country club and divide it by the number of proprietary members to come up with the notional per share value. If the notional value is much higher than the current price of the share, I would take a closer look, taking into account the cost of transferring the share, as well as how much it costs to maintain the share. I have found out through the years that, eventually, there would be an upward adjustment of sufficient magnitude to handsomely reward the treasure hunter.

Another favorite treasure hunting ground for me would be the stock market. I would normally look at the business the listed company is in and who are managing it. If the price earnings ratio is low enough and the share price is close to book value, I would take a closer look. If the regular cash dividend payout is in multiples of what you could get in the money market, I would go right in. In the 40 years I have been investing in equities, I can’t complain with my treasure-hunting formula.

Treasure hunting can be just a hobby or sideline, but it is fun doing it, especially when you make money out of it. You don’t have to be an Indiana Jones to be a treasure hunter, but you need to know what you are doing. It is always easy to buy, but the key is to be able to sell it at a higher price than what it cost you to acquire it.

 

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Turning Points 2018
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