By Chad Sandstedt of Value Investing Lab
I’ve heard a lot of talk about the TV program called Storage Wars, a reality show dramatizing the buying of abandoned self-storage units at auction. One of the investments I’ve made recently is in a small portfolio of self storage properties. Self-storage is a great business that throws off lots of cash with minimal need to re-invest in the property. The popularity of this show has created crowds at our properties much like growth investors flocking to the next big thing. Anyway, my wife loves watching Storage Wars and is begging me to take her to one of these auctions. I think the odds of my Padres winning the NL West are better than the odds of me spending a Saturday morning at a self-storage property (note: the Padres are 19.5 games out of first place). The show makes the bidding of these units very dramatic as everyone is wondering what treasures might lie behind those mattresses and ripped couches. One of the show’s actors talked about the $250 “investment” he made by buying a unit where he had no idea of what lies inside. The show adds up the profits or losses as the buyers sift through their very speculative acquisitions.
Can you imagine the advantage someone would have if they knew the worth of the contents in a specific storage unit? There would be no speculating as to what a storage unit contained and how much profit was to be made. You could bid up to the worth of its contents, less a margin of safety of course, and make money all day long. It would be called… investing. As investors we are pretty spoiled in being able to see inside the storage units (companies) before we decide to buy. It might not be fit for TV but it’s nice to be able to know the contents we’re buying and what they’re worth.
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Television has provided us with a perfect example of the difference between speculation and investment. Buying a storage unit where you have no idea about the value of the contents is speculating. Buying a storage unit where you know the worth of the contents is investing.
Until someone comes up with a reality TV show about the drama we go through buying $100 shares for less than $70 I will be looking for excuses to keep me away from these self-storage auctions on Saturday mornings. Happy hunting.