What makes you a good “deal maker”?
The question presupposes that I am a good deal maker!
A lifetime spent studying business, finance, markets, negotiation, real estate, and above all humans, individual and collectively, including organizational behavior and systems. Couple that with a high degree of caution, a honed sense of skepticism, and a compulsion to do massive due diligence. I don’t generally do a deal unless I see a way to add value. I try to avoid buying “the market” i.e. generic deals, I look for a “unique value add”, some problem that I can solve (“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” -Warren Buffett).
Fortunately, unlike a pension fund or other large investment institutions I do not have a huge amount of money I MUST invest annually so I’m willing to wait for a good opportunity. Sometimes that involves a LOT of waiting and sitting on a LOT of cash and that is when that ability to master your emotions comes in; waiting is often not easy. This is particularly true during boom times when it seems everyone and every deal is making money hand over fist and fundamentals no longer seem to apply. Only the most disciplined can avoid joining in the frenzy i.e. “You make your money on the deals you do, you keep it on the deals you don’t do.” As Warren Buffett said “Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” Rather it is a game where those who can keep their heads about them when all others are losing theirs win! I.e. if you cannot control your emotions, you cannot control your money. “You don’t have to swing at everything–you can wait for your pitch. The problem when you’re a money manager is that your fans keep yelling, ‘Swing, you bum!’” – Buffett
That said, good deals are about final outcomes and execution i.e. post-purchase blocking and tackling are often as important to the final outcome as the original deal. You’ve got to be BOTH a good deal maker AND a good operator, a good investor, and a good business person.
Final thought: Maintain adequate liquidity for your commitments or at least have a viable plan: “I have pledged – to you, the rating agencies and myself – to always run Berkshire with more than ample cash. We never want to count on the kindness of strangers in order to meet tomorrow’s obligations. When forced to choose, I will not trade even a night’s sleep for the chance of extra profits.” – Buffett.
I’d be the first to admit that starting out I did some VERY high leverage deals and yet I ALWAYS had the cash/resources to meet future obligations for at least several years out. Some of the best deals I’ve done have been when someone ELSE was caught in a liquidity trap and had to sell at a discount.
As always, I share what I most want/need to learn. – Nathan S. Collier