Thursday, November 15, 2007

Buffet Buys Stake in Carmax

carmax logoThis is somewhat off-topic because I believe this to be a good long-term investment, and not appropriate for the goals of this blog.

It was disclosed yesterday that Buffet took a stake in the used car dealer Car Max. It's funny that he would do this, because I've thought long and hard about investing in them myself and I consider myself to be more of the Warren Buffet school of investing, slow and steady wins the race. The stock was near its 52 week low after a pretty decent run up in 2006. I liked their business model, and even told my friend Mona to check them out when she was in the market for a used car. However, the stock was punished after they announced they reduced their forecast.

Used cars have generally been the domain of sketchy used-car lots and individual sales. Carmax is changing that and making a business of having a national brand. I believe they can succeed because it's a niche I believe somebody needs to fill. People feel safe when they buy a known brand. That's why McDonald's and Starbucks is so successful, despite the fact that there is almost always a better local alternative. For a business that people distrust as much as used-car sales, having a recognizable brand will help to alleviate some of those fears. With only 86 stores in 39 markets, they still have lots of room to grow.

Again, I am not going to invest in them for this blog, but I may take a position in my long-term portfolio. This is a multi-year play. I don't buy everything Buffet does, but when he and I have the same idea, I use it as an additional data point. I might hold out a little bit longer. I've avoided almost all things consumer related, as I have believed for quite some time that we would hit a recession soon. Car purchases, even used-car purchases, will be affected if this happens. However, this is still a bearish call on the economy, which I have, so I might look into buying in soon.


  1. Take that money, borrow the rest, build a house without a general contractor, sub-contract everything except what you can do and sell it. Most areas allow you to be your own GC 1 time every 2-3 years. I just finished mine and picked up at least $45,000 in equity. Spent around $155,000 and the home is worth $200,000.

  2. Hey T, good to see you back online - JennySmith pointed the way. I'll be watching your project. 100% ROI isn't half bad! :-) Hope you make it.

  3. Skiing, thanks for stopping by. I'm not sure I could do your plan. I'm not one for real-estate or real-estate investing but I really appreciate the thought.

    Susan, glad you stopped by and that you will be one of my readers. I have been quiet as of late, part of it were job related, but I should be around until I see this through one way or another.

  4. Hi Terrence, I've been studying the market on and off for the past few years, but I've finally recently decided to really get into the thick of it and learn! I was just curious, do you have a particular trading style that you are using for your project (if you don't mind my asking)?

  5. Hey Lillian. At this point, I am not quite ready to articulate my trading strategy. Not because I don't want to share, but I'm still trying to put it together. You see, I'm not a short-term trader. I'm the type of guy who buys stocks, and basically plans on holding on forever. This new idea is the exact opposite of that. For the most part, you can be sure I'll be taking positions for only a very short time. Days, maybe a few weeks, but not more than that. We will see how I do. But if you keep following along, I'll write everything I do along the way.