In the movie ‘Pirates of Silicon Valley’ we see a young Bill Gates sell a multi million dollar contract to provide his disk operating software (DOS) to IBM. The resulting contract kick started his Microsoft empire. The ‘slight’ problem, that we discover after the meeting, was that Bill had no such product at the time. Gates quickly approached Seattle Computer and bought their ’86-DOS’ product, allegedly for a mere $50,000, and the rest is history.
In Mark Tiers book ‘The Winning Investment Habits of Warren Buffett & George Soros‘ we see another great example of selling before you buy. Legendary Investor George Soros gathers his team and lets them know that he wants to start buying large positions in company X. However his first order confuses the team as he tells them to sell the 100,000 shares he owns of company X. When asked ‘why would you sell our current holdings when our goal is to increase our share of the company’ he replied [something along the lines of] ‘In order to test my theory I need to prove that there is a strong market to buy shares in this company. If we cannot sell what we have now then we will struggle to sell any larger holdings in the future’ .
Eureka!! I quickly realised that I could use a hybrid approach when buying an apartment. My goal is to avoid a negative cash flow situation and I wanted to ensure that rental income would cover the cost of the mortgage. I realised that I first needed to ‘rent’ (sell) any property before i bought it. I have tested my ‘buy theory’ by advertising any potential property to rent (sell) on sites like craigslist. I advertise the property at a rental price 10% higher than the monthly mortgage costs. I view each enquiry as an indicator of the potential ‘sell ‘ market. Enquiries do not guarantee selling at that price but getting 25 enquiries on property A and 2 on Property B is a very valuable indicator when it comes to making a buy decision!
Selling before you buy makes the purchase decision a little bit easier :)