You Can't Go Wrong With $1

Disclaimer: Please note that all content and information in this blog are for educational and informational purposes only and should not be taken as professional investment advice.

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Recently at a fruit shop at a wet market, I got some fruits from the discount pile. $1 for 11 mangoes, $1 for 13 persimmons, and $1 for 3 bunches of bananas. I think it's a really good deal, but not everyone did. While many saw the discount pile, few bothered looking twice.

It's unsurprising as the fruits weren't in great shape — mangoes were blemished, persimmons dented, and bananas split. In short, unappealing to many. But one man's trash is another man's treasure — this turned out to be really true. 

The fruits were great not just because there were cheap but because they actually tasted good — sweet, juicy, fragrant, and they lasted me over a week which was unexpected. 

All in all, while 1-2 mangoes were rotten, the rest were fine. Was it surprising? Yes, given how cheap they were. But what is unsurprising is the value, specifically the value I saw in the fruits — not what others saw but what I saw — my perception of value where others saw little to no value.

The fruits were cheap not because they had no value but because the store didn't see value in them. Specifically, the store believed people wouldn't see value in them, and thus priced them below cost. For the store, it's just business, as selling at below cost is better than not selling at all. But for me as a customer, it's a value-for-money buy — a healthy investment in fruits.

For context, mangoes of similar size were selling for $0.60 each, persimmons $0.50 each, and bananas $1.50 per bunch. So the total value of the fruits was $17.60. And because they were blemished, they were on sale — all for $3.

Even if we discount by 50% since they were blemished, it's $8.80 worth of fruits for $3. I think it's a good deal but not everyone else did. But why? I don't think anyone will know but my best guess is that no one likes to buy unwanted things — perhaps because they see little see value in blemished and supposedly discarded fruits.

While I do not enjoy buying unwanted things, I enjoyed buying undervalued things — the same goes for stock picking. I buy what I see value in when no one else does.

So back to the title: You can't go wrong with $1. What exactly do I mean? The risk of buying things when they are dirt cheap is almost non-existent. This is not to say it's riskless. But it's very low.

Buying a basket of fruits for $1 is cheap by most standards. But what made me buy when no one else did? I reasoned that even if all but one of each fruit was rotten, it was still a good deal — $1 for a mango, $1 for a persimmon and $1 for a banana. 

But isn't that above the normal price? It is but it was a calculated decision — or a bet that the fruits will be edible or better still, taste good. As it was my first time getting those fruits from the discount pile, I didn't know what the outcome would be. So it was a risky but calculated decision. 

But since a basket of fruits cost only $1, it was a high risk but low impact decision. Also, I saw pretty high odds of ending up with a decent pile of edible fruits, and it would be a bonus if they tasted good.

For instance, for the 13 persimmons, I expected at least half would be edible, and it turned out all were — not just edible but sweet and juicy. So it was not only a good decision, but a great one.

The price you pay is independent of the value you get. The hesitation to buy unwanted things cheap is real. But if it's a calculated decision, it's worth taking. The best case was that all the fruits were edible and turned out great, while the worst case was that all the fruits turn to be rotten and inedible. Factoring in the best and worst case scenarios with the price we pay will help us better gauge whether it is a decision worth taking.

However, in the event that the worst case materialises — that all the fruits are inedible, then what benefit do I get? The knowledge that the discount pile for mangoes, persimmons and bananas in this store isn't worth getting in the future. If this knowledge alone is worth $3 to me, then the fruits are just a bonus. Seeing it from this perspective, the decision to buy the fruits is a no-brainer. A $3 lesson if all the fruits turned out inedible — costly but not earth-shattering. I was glad that didn't happen as the fruits turned out great and much better than expected.

A hidden treasure for $3 — both pleasant and healthy. 

My Takeaway

The ability to consistently buy or invest in supposedly unwanted assets, or as I view it: undervalued. In this case of fruits, buying at below cost. The knowledge that the fruits from the discount pile were edible and good was worth it, as I headed back a couple of times weekly, and got more fruits from the discount pile. While not all were as great as what I had gotten the first time, it was a good deal nonetheless. 

Getting "wonderful" fruits at a good price — reminds me of Buffett's saying of buying wonderful companies at fair prices. Overall, the value I got from the discount pile exceeded the price I paid :)

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The store has many pretty good fruits at reasonable prices. $2 for custard apples. $2 for blueberries. $3.30 for USA grapes. $1 for a papaya. Many more value-for-money fruits. My family usually spends $15-25 per visit. While it is not as cheap as the discount pile, the quality is definitely worth the price for most fruits there.

Discount piles are pretty common. Recently went to a Cold Storage and Giant and got some huge NZ apples for $1.30 and Australian pears for $1. Normally they're $2 each. Not as cheap as the fruit store but a good deal nonetheless. 

Likewise in investing, it pays to consistently buy undervalued assets. The cheaper an asset gets, the lower the risk, as risk is directly related to the price you pay. The higher you pay, you more risk you take. Because you're risking more capital for the same asset.

I rather buy bad assets that are undervalued than great assets that are overvalued. It's not the asset that matters but the price you pay. As Howard Marks says: "It’s not what you buy, it’s what you pay for it that determines whether something is a good investment."

Paying for bad stuff that is undervalued is still profitable in the long term. Consistently making calculated investments decisions in undervalued assets will pay richly. When the price you pay is low enough, regardless of the asset, you will profit.

In other words, you can't go wrong with $1.

P.S. The $1 fruits I got:

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