My Frugal Miser's Best Advice I've Received - Patience

This week I want to explore more of the advice I learned from Warren Buffett and Charlie Munger. I thought I would start with a very important piece of advice and one that I struggle with:

Be patient and wait for the right opportunities.

Have you ever had a friend who, as soon as they had some money, it was as though it was burning a hole in their pocket? I know a lot of people like this. It doesn't seem so bad at the time - they splurge like the world will end tomorrow. But then comes the hangover. An unexpected bill arrives and they have no money to pay it. How to pay it? Do you get a payday loan? Do you pay it late along with the late fees? Do you borrow from a friend? You know, the friend who always bails you out? They don't mind, do they?

Similarly, I've known a lot of investors who just hate to have cash in their brokerage accounts. I really struggle with this personally. Instead of investing in a mediocre business (or, for me, a "so-so" rental property), keep your cash in a money market account and wait. Wait for that investment or property that SCREAMS AT YOU TO BUY. You'll feel like that opportunity will never arrive - I sure do. But just as you are about to give up, opportunity knocks.

In the spring of 2009 there was a foreclosed condo I had my eyes on. The other units have sold for as much as $75,000 in the past. The most recent sale was for $65,000. All the condos were identical, which made for easier comparison. When I first saw it, the listing on the HUD foreclosure site was for $40,000. I took a look at it, but it was too rich for my blood. After it sat on the market for a while, HUD got aggressive and cut the price to $20,000. I saw opportunity and placed a bid for $18,500. Unfortunately, another potential buyer placed a bid for $30,000 under the assumption the low price would attract several competing bids. Of course, I lost to the higher bidder. At least I thought I did.

A couple months later I got a call from my agent. He asked if I was still interested in the condo. Confused, I asked him what he was talking about. Apparently the high bidder couldn't line up financing and his offer ultimately was rejected. As the second highest bid, HUD was willing to accept my offer.

That condo is my cash cow. It needed very little work. I spent something like $2,000 in repairs and upgrades. After expenses, I net about $350 per month on my $20,500 total investment. That's a 19% annual return on my investment, and it doesn't include any appreciation in the value of the condo.

Opportunities will come around when you least expect it and you have to be prepared when they do. A lot of people get antsy when they have cash sitting around to invest and feel they have to do something with it. Smart investors sit on the cash until they need it for the right investment.

A Week in the Life of a Mystery Shopper

June 20th - June 26th...

This was one of my slowest weeks in a while. I had a hard time finding shops. Hopefully this is a one-time blip. The good news is that all the free time I had last week was put to good use as I was able to check off many items on my project list. Last week I made $252 in fees and $803 in reimbursements.

• I visited eight restaurants. One was a casual steakhouse while the others were fast food. It's interesting that usually the nicer restaurants are reimbursement only- no fees are paid.
  
• I shopped 4 retail stores, did one gas station audit, and verified the legitimacy of a business.
  
• My favorite shop was the high end hotel, which I blogged about yesterday.
  

This week looks like it will be slow as well, but July is looking much better. I have signed up for 50 gas station mystery shops (the maximum I can select at once) and about 25 mailing centers. I also have a special project on my merchandising route. These jobs will be the foundation for what might be a solid month.

High End Mystery Shopping: Mystery Shopping a Luxury Hotel

Ever wanted to live in the lap of luxury and not have to pay for it? Who hasn't!?! Mystery shopping has enabled me to shop - but not purchase - $4,000 watches and $5,000 surround sound systems. I've eaten $200 dinners and gourmet chocolates. But none of those experiences tops the mystery shop I completed last week.

Mystery Shopping the Luxury Hotel

Last week I checked into a high end hotel. When I checked out the next day, my bill + tips was $700. I don't have to pay for any of it. In fact, in addition to all charges being reversed, I am being paid a fee for completing the shop.

If you've ever considered shopping at the high-end level, there are definitely some things to take into account:

• Companies don't refund $700 in charges because they are nice. They are exchanging the value of these charges for detailed information.
• The level of detail required for this type of shop is unlike any other shop you could do. Gathering names are required, for example. My instructions were to keep repeating a scenario until I had a name, no excuses.
• It wasn't all fun and games. Much of my time at the hotel really was spent working. When I was not posing a scenario on an employee, I was usually working on my report.
• Don't get me wrong, I had a great time. But it's all about perspective. By great time, I mean I got a full night's sleep, enjoyed some wonderful food, and even spent a little time at the pool.

Here's a synopsis of what the job required:

• I had to evaluate valet parking, the doorman, the bellhop, housekeeping, turn down service, the driver of the town car, the front desk, the operator, and several restaurant employees. Many of these evaluations had to be performed more than once: check-in AND check-out, the doorman each time I entered or exited, etc.
• I had to evaluate dinner, room service, the coffee bar and lunch. These were all in different venues at the hotel.
• Much of the report was yes/no questions, but each section did require commentary. Fortunately, the commentary was generally only required for negative responses. If the scenario was all positive, one or two sentences summarizing it were adequate.

Mystery shopping hotels, and particularly high-end properties, is not for everyone. If you think you'll have hours to lounge around the pool, sip martinis and get a pedicure, you'll be disappointed. But it can be a relaxing getaway as long as you stay on top of your paperwork. It's much easier to fill in the report after each scenario is performed than to try to do a marathon report at the end - probably impossible to remember enough details to do the latter. Having said that, I have no regrets at all. In fact, I am already signed up to shop another nice hotel in July.

Advice from Warren Buffett and Charlie Munger

I finally got around to transcribing my notes from the 2010 annual Berkshire Hathaway meeting. Each year I take away some invaluable advice on living life and on investing. Much of it is common sense, but to hear two of the wealthiest men in the world say this advice works really helps me focus. Here are a few of the highlights. Most of this is advice on investing, but a lot of it helps in day to day life:

• Be patient and wait for the right opportunities.
  
• Good investments only happen from time to time. The good news is, it only take a few to do really well.
• Follow your passion. Don't let anything get in your way.
• Spend less than you earn.
• Be pragmatic. When something works well, keep doing it. Repeat what works.
• Know your circle of competence and invest only in what you know.
• Some of the best investments are in companies with low capital requirements. For example, companies where customers pay you in advance of receiving the product or service. You get to use the customer's money to finance your business.

I'll probably expand on some of these later because I really like these nuggets. Spend less than you earn is probably my favorite as that is a major premise of this blog.