I spend a lot of time trying to find good investments. This leads to me reading the financial statements of many companies you’ve never heard of.
WHATEVER AT LEAST IT’S CHEAPER THAN HAVING FRIENDS.
Many people scoff at my efforts. Why bother, they say, when you can just buy an index fund and do pretty well? Even stock pickers don’t get my lust for small-cap stocks. I get told probably once a week I just shouldn’t bother and stick with huge blue chips. I’ll largely match the performance of the market without the stress of investing in high-risk penny stocks.
In reality, nothing could be further from the truth. Value has very little to do with the overall price of a stock. I don’t care if the company trades at a penny per share or $100, as long as I’m buying severely discounted assets I’m good. People wrongfully assume that something which isn’t a household name is somehow crap to be avoided at all costs.
But maybe even I haven’t gone far enough. A few months ago, I asked y’all what you’d do with $100,000 in cash you couldn’t invest in the usual things. A number of interesting responses came in, including one from Stephanie:
Stephanie (okay, mostly her husband) has the one thing that you really need to get ahead in this world — an edge. They know that business, and chances are she and her husband are the only natural buyer. This is the kind of situation every investor looks for.
I believe in a simple rule of thumb. The less liquid the market, the better the opportunity. Everybody knows Telus or Suncor exist; therefore, it’s very likely they’re efficiently priced. As you get smaller, better opportunities exist. Telus and Suncor are each worth tens of billions of dollars, while the average small cap (at least in Canada) might be worth $100 million. I’m pretty sure none of the investors who scoff at investing in small companies would say no to owning one, but I digress.
After that we have micro cap stocks, which might be worth between $1 and $10 million. And then we have businesses that are even smaller. If my logic that the smaller the business the better the potential opportunity holds true, then maybe investors shouldn’t even be looking at the stock market at all.
But where to find these businesses? There’s Flippa for those of you who are into blogs, but nuts to that. Unless you’re Jeff Bezos, you probably shouldn’t have a big chunk of your net worth into the blogging world. It’s nothing against it per se, I just find it to be a very inconsistent business. It’s easy to lose readership to the next new thing.
Fortunately, there’s a better way. It’s called Biz Buy Sell, and it might be my new Kriptonite. There are all sorts of businesses on there, everything from franchises to the most unique stuff you can imagine.
And the returns! My word, guys, these are some succulent investment opportunities. All I did was search for businesses in Alberta, and there were opportunities that anyone can get into with only a little bit of training and a reasonable amount of capital.
Let’s take a look at a couple I found.
Subway? YOU KNOW IT
Oh, hello Subway franchise.
- Includes the franchise fee, the equipment, and everything else you need to run the business. The building is leased until 2024.
- Gross income is revenue, and cash flow is profit to the owners. It’s unclear as to whether a manager is being paid to run the place or not.
- Revenue hit $900k in the past and is down slightly since. No idea why.
Finally, Nelson has the chance to own a Subway franchise. If only they would have let me use my approximately $295829582592582500010000000 that I dropped off there over the years as a down payment.
Let’s assume the worst case scenario here and assume the cash flow listed here came before the owners paid themselves. You could probably get a pretty decent person running the day-to-day operations for $45,000 per year, putting your cash flow at $75,000 annually. If you could buy the place for $500,000, you’d be buying a business at just over 7 times cash flow that needs some active management, but not a whole hell of a lot.
There will always be opportunities to expand too. Once you get your team in place at Subway #1, then go off and buy another one. Repeat until you get filthy rich. At a return of more than 14% annually, it won’t take that long. You sure can’t expect the stock market to do that, that’s for sure.
Don’t have five hundred grand kicking around? No problem. There are plenty of other opportunities for less.
- This doesn’t include the inventory
- No word on the lease here, but for $110k you’re not getting a building
- Cash flow is before the owners pay themselves
This one offers a better return on a price-to-cash flow perspective, but there are some issues. You’re in Edson, which is pretty much the definition of the middle of nowhere. It also looks like the business has a bit of an expense problem, which pretty much means you’d have to be a hands-on owner, at least for the first little while.
There’s admittedly a lot we don’t know about these businesses. I’d have a million and one questions before putting a bid in on anything. But I also don’t doubt there’s a return on investment there. It’s up to the due diligence part of the transaction to determine if an opportunity exists or not.
One more? Okay.
So you’d be out $400,000 on this opportunity, but the $150k in inventory is something you’d get back when you sold the place, so the cost is really $250k. There will always be demand for liquor stores too, unless you people stop with the sauc- NOPE COULDN’T EVEN TYPE THAT WITH A STRAIGHT FACE.
Any moron can run a liquor store. It would be easy for you to do all business owner stuff and then bring in some maroon to do the grunt work.
The ultimate point is this. If you’re willing to put in the work of actually owning a business, there are tons of great opportunities out there that offer much better potential returns than passive stock market investments. If the goal is to get richer, it’s something you have to at least look at.