This is one of the most common issues, and one for which there is probably no absolutely correct answer! In years past I guess I've sort of done what jcarkie just posted about. Currently I'm selling everything I raise. Maybe I'm not enough of a progressive thinker, but there are certain of my cows that I'm generally very happy to keep heifers out of, despite that there may be something for sale available to me at a fair price and with superior genetics. If a cow always breeds back on time, delivers without problems, weans off a good sized calf considering my forage conditions, has a good disposition and no udder problems I'll generally be happy to keep her heifers, or at least not ship them at weaning. I believe those good traits are fairly heritable and so I'm willing to try to grow my own out of those "known quantity" type of cows rather than buy & transport cows from elsewhere that look good but about which I know very little else. The 2+ year wait for a payback is not a problem, in my mind.
One method that I and a few friends use is to separate the group of heifers that we think we want to keep and grow them out separately. With the passage of time some we will continue to like a lot and some may go down in our estimation -- and they get culled at that later time. At the same time we understand that the current conventional wisdom is that for small operations you are better off buying replacements from folks with the latest genetics, and who have the facilities and forage program to grow out the heifers properly and get them up to proper weight as effeciently as possible.
Another thing to consider is unknown health issues with respect to newly purchased animals. The topic just posted today on another of these Cattle Today boards, regarding a Johnes problem with purchased cows, is a prime case in point. If you raise your own replacements and essentially have a closed herd except for new bulls you probably are bettter off from a health standpoint. Granted you still need to be concerned about the neighbors cattle, broken fences, roaming bulls, etc. I never have bought replacements that were not OCV's and Bangs tested, but I guess with hindsight I would rest easier if they would have been tested for a number of other possible diseases before I bought them. But I do realize that other tests (except for bulls) are not routinely done and that each layer of testing addds to the cost.
Dang this is wordy --- sorry about that --- I need to learn to express my thoughts in far fewer words!!! Arnold Ziffle