When considering an investment, the first thing that I seek is a price-insensitive counterparty. It is much easier for someone who cares about value to transact business when the counterparty does not care about value. No one - no one - not a person living or dead or any association thereof cares less about value than the government.

In the past, I have bid on anything of analyzable value in government sales with the view that the seller does not particularly care what they get and it is never certain who, if anyone, will show up to bid against me.

Darryl Strawberry

For example, earlier this year, my family bid on Darryl Strawberry's deferred compensation agreement in an IRS auction.

Bitcoins

Last year, I bid on 30,000 Bitcoins in a United States Marshals Service auction. Moments after submitting my bid, my identity was leaked to the press along with the identities of the other bidders. Given that we were trying to buy assets that had just been seized by people the government considered to be criminals, such disclosure could have been sub-optimal.

Lighthouses

In 2013, instead of tilting at windmills, I was tilting at lighthouses. In an era of modern GPS, a lighthouse is a pretty antiquated piece of technology. The government gave away 68 of them and sold another 36 at auction.

The iconic Graves Island Ligth Station in Boston Harbor went for under $1 million and the Boon Island Light Station, New England's tallest lighthouse, went for only $78,000. You can check out other unusual items for sale from the U.S. government here.

TARP Warrants

In the prior years, one of the biggest government auctions was for TARP warrants.

The basis for my interest in such securities is a view that they lack a natural constituency of investors that want to own them. So, they can trade horribly for a while. A basket of TARP warrants lost over half of their value from the auctions until the beginning of 2012. This was the natural process of the market's clearing mechanism at work. But since then, they have performed well, up 164% compared to the S&P 500's 77%. In my basket, I included HIG, LNC, COF, JPM, PNC, WFC, CMA, and BAC warrants. The bank that I know the best is WFC, which I have followed due to my interest in DJCO and BRK-A/BRK-B. Part of the opportunity to buy these at a bargain existed due to relatively modest liquidity.

FCC License Giveaways

Virginia Senator Mark Warner earned over $150 million scooping up cellular spectrum licenses won in FCC lotteries. The government literally gave away licenses and the well-connected Warner was able to clip 5% commissions for flipping them to buyers who would use them.

Those cell phones: most people consider them an annoyance, but I just hear 'cha-ching, cha-ching.'

- Mark Warner, Senator and Hustler from Virginia

I do not always believe in politicians, but I always believe in arbitrage. So when he says that he is taking something of immense value that is given away by the government, pocketing a 5% vig, then re-selling to the highest bidder, I believe him.

Speramus meliora; resurget cineribus

Detroit's motto means,

We hope for better things; it will arise from the ashes.

They certainly keep the ashes in good supply by burning the place down from time to time. As for me, I am happy to hope for better things, too, as long I can underpay for them.

You can register to bid in Detroit's real estate auctions online. Financing is available. Winning bids range from $1,000 to $35,000. There are nine current listings for houses costing $1,000. I recently proposed to my family that we buy a home in Detroit along with a foreclosed condo in Florida. If we financed them both, we could rent the Florida home all winter and the Detroit home all summer. We would winter in Detroit and summer in Florida. In addition to being the first family in downtown Detroit to use "winter" as a verb", we could live for no net costs. Sadly, my proposal had had no takers. Detroit city employees, retirees, and family members get a 50% discount on Detroit Land Bank Authority auction homes. If you or someone you know qualifies, you should apply for the discount. You may be able to find an investor who would provide capital in a real estate partnership.

Conclusion

If you care about price, you are well served to find a counterparty that does not. To that end, consider buying whenever the government is selling. If you are interested in further reading on the topic, consider When Money Grew on Trees: A. B. Hammond and the Age of the Timber Baron about one of my heroes.

Andrew B. Hammond looked as if he was a successful risk taker. He was no such thing. He captured the process of buying, developing, and selling timber by getting land for free or next to free from the government. There was essentially no pain and massive gain. Who will be the next Hammond and where will he find his next government giveaway?

More broadly, why do these opportunities exist? It is not that the government bureaucracy can be stupid - which it can - or that it does not care about the taxpayers' money - which it does not. The opportunities exist because bidders are not only counterparties; they are mostly American citizens and voters. So, if they consistently are buying losers, it could make for some unhappy people. If the markets are bent a bit in their favor, they will be happy and the taxpayers will hardly ever notice. The government is not trying to maximize value. Its mandate is complex. A complex mandate is one of the attributes worth seeking in a counterparty as one seeks an advantage play.