Core Principle Series – Scenario #3
Beth and her father’s land
Beth was surprised when the attorney called her. She and her sisters had heard once that her parents had some kind of property in the southern part of the state but no one had ever been able to validate anything. Now she learned that there was a run down house with some acreage attached to it but the land had a conflicted title with descriptions that crossed into some federal land. The attorney advised that instructions from her father had been given to him to resolve the title dispute, sell the land, and distribute the proceeds to the daughters.
He had done that and was now routing her share to whatever bank account she directed. The sum coming was surprising to her – $200,000. That was more money than she had ever had access to. Beth put the funds in a savings account and wanted to be careful about what to do with it.
At a family gathering later in the week, Beth was approached by an uncle who asked if her dad’s ‘mining’ property had ever sold. Beth told him that there was a property but she didn’t know anything about a mine. The uncle seemed to know all about it and advised that the purpose of the land was to support a gold mine that dad and a friend had been working on. The buyer of the land they discovered was the friend who wanted to protect the work that they had done to date. The uncle was involved also as the friend had allowed the uncle to buy in via some ownership shares – taking a portion of the father’s ownership. The same opportunity was available to Beth. For the $200,000 she could buy her father’s remaining shares from the friend and would own about 15% of the gold mine. Beth liked the thought of continuing the efforts that her father had been making even though she knew nothing about mining or how to gauge its value. At the uncle’s recommendation she arranged to purchase the shares from her father’s friend. She was now the owner of a gold mine, at least part of it any way.
Six months later, Beth needed to replace a barn at her property and needed $40,000 to do it. When she tried to sell the shares of her mine, she found that nearly impossible to do. There was no open market, the mine wasn’t actively producing yet, and the only possible buyers were the dad’s friend and the uncle – neither of which had any cash to buy the shares with. Unfortunately, from any practical perspective, her $200,000 inheritance was simply…gone.
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We’ll use this scenario to discuss the “10 principles of smart investing” over the coming days. As a reminder, those 10 principles are:
Ten core principles of smart investing:
1. Don’t put all of your eggs in one basket
2. If it sounds too good to be true, it probably is
3. Urgent and only available today = wrong
4. Follow the money
5. Buy low and sell high
6. The balance of risk and reward
7. Fail to plan, plan to fail
8. The endowment mindset
9. Whose money is it?
10. Fact based on an observation of one
If you’d like to set up an appointment to talk, please send me an email – Todd@ColwynInvestments.com