Showing posts with label fair price. Show all posts
Showing posts with label fair price. Show all posts
Saturday 31 July 2010
Monday 26 July 2010
What is the correct company value? Value versus Price
What is the correct company value?
Nobel Prize winner in Economics, Milton Friedman, has said; “the only concept/theory which has gained universal acceptance by economists is that the value of an asset is determined by the expected benefits it will generate”.
Value is not the same as price. Price is what the market is willing to pay. Even if the value is high, most want to pay as little as possible. One basic relationship will be the investor’s demand for return on capital – investor’s expected return rate. There will always be alternative investments, and in a free market, investor will compare the investment alternatives attractiveness against his demand for return on invested capital. If the expected return on invested capital exceeds the investments future capital proceeds, the investment is considered less attractive.
http://www.strategy-at-risk.com/2009/02/15/what-is-the-correct-company-value/
Saturday 17 July 2010
Tuesday 10 November 2009
Price Versus Value When Buying a Business
Price Versus Value When Buying a Business
Written by Bobby Jan for Gaebler Ventures
If you are an entrepreneur and looking to buy a business, there are a few concepts worth understanding. This article covers the concepts of price, value, and cost.
Wondering how to value a business?
(article continues below)
Warren Buffett once said, "Price is what you pay, value is what you get."
Business valuation is difficult and too many people use price as the signal for value. The price for value confusion can be costly.
Price is the amount of currency paid to acquire an asset. Cost is the total amount of one or more commodity to acquire an asset.
These commodities could be anything from time, natural resources, currency, etc. Cost and price are closely related and are often interchangeable. However, in many cases, the price paid for an asset and the cost of acquiring it might be significantly different.
Without getting philosophical, value is the intrinsic economic worth of an asset. Value refers to the true worth of an asset as according to some standard. For example, you an asset's value might be how much it can produce another product.
Often, the value of an asset is ultimately how much it contributes to the bottom line of a business. The goal of business valuation is to determine the value of a business.
Paying attention to price instead of value caused many personal and social tragedies in history. Investing based on price is responsible for the Tulip Mania in the 17th century, the Great Depression in early 20th century, and most recently the dot.com bubble in the late 1990s
On the other hand, buying based on value has made many individuals very wealth, including the richest man in the world, Warren Buffett.
Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.
Written by Bobby Jan for Gaebler Ventures
If you are an entrepreneur and looking to buy a business, there are a few concepts worth understanding. This article covers the concepts of price, value, and cost.
Wondering how to value a business?
(article continues below)
Warren Buffett once said, "Price is what you pay, value is what you get."
Business valuation is difficult and too many people use price as the signal for value. The price for value confusion can be costly.
Price is the amount of currency paid to acquire an asset. Cost is the total amount of one or more commodity to acquire an asset.
These commodities could be anything from time, natural resources, currency, etc. Cost and price are closely related and are often interchangeable. However, in many cases, the price paid for an asset and the cost of acquiring it might be significantly different.
Without getting philosophical, value is the intrinsic economic worth of an asset. Value refers to the true worth of an asset as according to some standard. For example, you an asset's value might be how much it can produce another product.
Often, the value of an asset is ultimately how much it contributes to the bottom line of a business. The goal of business valuation is to determine the value of a business.
Paying attention to price instead of value caused many personal and social tragedies in history. Investing based on price is responsible for the Tulip Mania in the 17th century, the Great Depression in early 20th century, and most recently the dot.com bubble in the late 1990s
On the other hand, buying based on value has made many individuals very wealth, including the richest man in the world, Warren Buffett.
Cheng Ming (Bobby) Jan is an Economics major at the University of Chicago who has a strong interest in entrepreneurship and investing.
Thursday 7 August 2008
Investment merit at a given PRICE but not at another
Investment Policies (Based on Benjamin Graham)
PRICE: is frequently an essential element, so that a stock (and even a bond) may have investment merit at one price level but not at another.
______________________________________
Having selected the company to invest based on various parameters, the next consideration will be the price we are willing to pay for owning part of its business.
Price is always an important consideration in investing. At a certain price, the company can be acquired at a bargain, at a fair price or at a high price. Each scenario will impact on our investment returns.
We should ALWAYS buy a good quality company at a BARGAIN PRICE (margin of safety). This allows us to lock in our potential gains at the time of buying at a favourable reward/risk ratio. This maybe when the upside gain: downside loss is at least 3:1.
There maybe FEW exceptional occasions when we may be willing to pay a FAIR PRICE for a good quality company. This is often the case when a good quality company is fancied by many investors and is often quoted in normal time at a high price.
However, we should NEVER (NEVER, NEVER) buy a good quality company at HIGH PRICE, whatever its earnings and growth prospects maybe. To do so will not only diminishes our potential investment returns, but may even results in a loss of our capital due to the unfavourable reward/risk ratio.
Don't time the market, it is difficult. However, there will be time when the market is on sale and the prices of stocks are at a bargain and there will be time when the market is exuberant and the prices of stocks are high or very high.
The market will always be there and we should choose when to buy and when to sell. We should only buy a stock when the PRICE IS RIGHT FOR US and sell a stock when the PRICE IS RIGHT FOR US.
(What is market timing? Timing is a term that refers to investing by buying everything or selling everything on the basis of the (faulty) assumption that one can predict the market's next move. Attempts to time are common, but academicians and practitioners have concluded that success happens through luck only on occasions that are quickly reversed and very costly.)
PRICE: is frequently an essential element, so that a stock (and even a bond) may have investment merit at one price level but not at another.
______________________________________
Having selected the company to invest based on various parameters, the next consideration will be the price we are willing to pay for owning part of its business.
Price is always an important consideration in investing. At a certain price, the company can be acquired at a bargain, at a fair price or at a high price. Each scenario will impact on our investment returns.
We should ALWAYS buy a good quality company at a BARGAIN PRICE (margin of safety). This allows us to lock in our potential gains at the time of buying at a favourable reward/risk ratio. This maybe when the upside gain: downside loss is at least 3:1.
There maybe FEW exceptional occasions when we may be willing to pay a FAIR PRICE for a good quality company. This is often the case when a good quality company is fancied by many investors and is often quoted in normal time at a high price.
However, we should NEVER (NEVER, NEVER) buy a good quality company at HIGH PRICE, whatever its earnings and growth prospects maybe. To do so will not only diminishes our potential investment returns, but may even results in a loss of our capital due to the unfavourable reward/risk ratio.
Don't time the market, it is difficult. However, there will be time when the market is on sale and the prices of stocks are at a bargain and there will be time when the market is exuberant and the prices of stocks are high or very high.
The market will always be there and we should choose when to buy and when to sell. We should only buy a stock when the PRICE IS RIGHT FOR US and sell a stock when the PRICE IS RIGHT FOR US.
(What is market timing? Timing is a term that refers to investing by buying everything or selling everything on the basis of the (faulty) assumption that one can predict the market's next move. Attempts to time are common, but academicians and practitioners have concluded that success happens through luck only on occasions that are quickly reversed and very costly.)
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