Help me define "Value"

[Anon3587x]

Without a doubt its safe to say "Value" will make you rich.

We all know we must:
​

• Multiply this value
• Improve this value
• Advertise this value
• Distribute this value

Doing all of them above will make you inevitably "more rich"

But what is Value?

How many Entrepreneurs have had amazing ideas that seemdc total fail proof. But they just couldn't sell it or become successful at the trade?

How do you really decide which ideas of value are worth pursuing or not?

I know there HAS to be a common denominator between:

Value that will in turn make you successful
&
Value that will drain all your money and waste your time

There has to be some sort of formula to define the differences.

Rather it be usability, durability, time the idea was marketed or a combination of other things.

Luck is NEVER added into any of my equations because as I said before we create our own luck through action and perseverance.

I had a revelation the other day on this forum when I read a post by PhxMJ I believe.

If I understood it right, he basically said advertising is just as important, if not more important then the value itself.

You can advertise a product that's only of 60% value.

But if there is a unadvertised product of 95% value which is also cheaper.

The 60% valued product will sell over the 95% valued product. Just because it was marketed better.

Do people with amazing fail proof ideas fail because they fail to market correctly?

Or is this problem within the idea itself?

I really need some of you to turbo your minds around this and give some good feedback.

This question is derived from the notion that value=money

1. Being amazing at creating value will make you more money
2. Being Extrodinarily amazing at

• creating Value
• distributing Value
• advertising Value
• improving and multiplying Value

Will make you so much money you can't count it all.

Because as a wise rich man once said

"you are not truly rich until you can't actually count all your money"


-RJB

A little to add. a P.S I suppose

I've been in denial during my past posts on this forum.

I maintained a moderately modest essence about what I'd like to accomplish. Never fully explaining or admitting to my ambitions.

I did not want anybody reading what I said to look at me and think I'm just one of those kids full of motivation and inspiration, Butt lacked what it really took to obtain what they wanted and would most likely never be able to acquire wealth.

Maybe this is because I make this same assumption about others so I assume you would do the same to me.

Anyways I now understand what I'm capable of.
You can call me arrogant, but this is the last thing I really need to understand before I really take off and start on my way. This information does not only serve me, but yourself and others browsing the forum for years to come as well. I don't have enough room in this post of infinity space to really explain this whole picture I have going on in motion through my mind.
The fact that I understand even this is great.

They said Einstein was so genius because he came up with the theory of relativity simply but thinking about it.

I can complete relate to what that sort of brain power is like.

How I'd rather be without and ignorance is bliss never sounded so sweeter.


I've talked to many people face to face and none of them were able to understand my ideas or reasoning for having them.
Despite me having undeniable evidence clearly presented to them.

To me its just natural, but to most its quite over the top or they consider it impossible and tell me to get my mind right. In which i always reply
no, you get YOUR mind right

I can only hope this forum stays up for many years so one day people will reflect on every post I made. I'm aiming for so much more then I may of stated before. All the knowledge is there to accomplish it.
I'm already working on a great idea which i improve everyday.


Everything I know about business took place between then and now. You can call me a rookie and inexperienced but you would only somewhat be right.

Ignoring this humble personality just about everyone takes on because they are afraid of being laughed at if they fail.
I truly without unreasonable doubt feel like I am something special.

This is not some thought I've thought up to give my self the false sense of entitlement of being special.

It's something I have known all my life and its about to surface.

Now This post is KEY for anyone to reach success.

Let's get some dam motivation here and figure it out.

Nothing is going to be able to stop you if you can really grasp this

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Anon3587x]

Really nobody has anything to add?

This is the core essential to making money in my opinion.

If you harness the knowledge of what successful value and unsuccessful value is.

There is nothing stopping you from doing unimaginable things.

It does not differ from situation to situation as much as you may think. Something is telling me there is a universal answer and steps that need to be taken to ensure success.

I see posts about Lebron James getting more attention then this.

I realize not everybody on this forum is as Hungary as me because a lot of you are already successful therefore are able to enjoy the finer things in life and take notice in what is going on in the NBA.

But for those who are still in the shuffle lets take some action and figure this out.

I refuse to accept anything less then the complete answer to the question because I know its out there but I am missing a few puzzles pieces to answer it myself.
I need your experiences to fill in the blanks

 

[Icy]

It's been about 4 hours since you've posted. Give it some time man... I know for myself, I like to read something, and come back to it in like a day or so because it gives me time to really think about it. Not everyone will reply in a few hours...

Honestly, I've kind of lost interest in answering since you act like we owe it to you.. also remember things like the whole Lebron situation is nice and quick to reply to, and this actually requires a thought out reply so people will get to it when they have more then a few minutes..


Edit: Just another quick thing is that, that's a lot of text to consume. Perhaps consider editing it down. It's intimidating for someone looking to answer quickly

 

[Ready2bfamous]

Hi.
I have a perfect point that you might understand. You want us to "define" value for you, right?

Well, your impatience degrades value. You expected instant gratification because it's the internet you thought you should have a "valued" answer.

Part of value is patience and taking the time

That's what I think..

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[FDJustin]

Is there a universal answer? I have an outlook, and nothing more.

The value in something is how much a person will desire it over other choices they can make. The value in something is always specific to a type of person, so you need to first discover who it matches, and then educate them to why they should desire it over other things they might want.
Sure, from the customers point of view the value will be the results of whatever it is you're offering. A clean and cut lawn is why someone hires someone to do it. Someone buys a new tool to be more efficient and successful with their projects. Those are their motives and perception of value, but I hold that the desire itself is the measurement.

Which leads me into philosophy of advertisement. Since the type of person you want to advertise to is different than other people, you have to know the proper way to approach them. This means you need to know where they go, what forms of media they're receptive to, cultural etiquette, etc.
That isn't enough, however. You need to set them into a certain state of expectation... One that isn't counter to buying from you. When you deliver on, or exceed that expectation, you have a well delivered piece of value.

A scientist isn't likely to want a book of spells.

The real question is, can you really identify ways to adapt your product to a different market? Earlier today I saw a commercial for raid bug spray. Other than the cute cartoon that did a good job at keeping my attention, it -implies- that it's a 'green' product by saying it uses the power of earth, the bugs death was natural causes, and it boasts using the carnif...carna..something flower.
My first instinct was to say "Not going to work." - not in response to the raid, but their intention. Appearing environmentally friendly might sway a few of the common folk into feeling good about using their poison spray, but how will the actual green fanatics react? They'll still see wasteful packaging, toxins being introduced into the environment, over-production, and likely any other thing they hold as being wrong will still exist in that can.
I could be wrong about that, but it's my reaction based on my understandings and prejudices of that particular culture.

If their intention is to make the people who want to casually reduce impact and whatever feel better about their product, it's likely a successful campaign. If I'm right and they're looking to target the more hard-core, either to steal them from some alternative or to penetrate an untapped market, they're chasing the wrong kind of people.

The standard gospel floating around for why things fail is because of an unidentified market. You think people will be interested (desire == value) when really they're not.

 

[moop]

With regard to business, value is what you provide to a customer. The medium is a product or service, which carries the capacity of fixing a problem or creating a positive experience for the user.

 

[throttleforward]

Value to me is either a problem solved or sentimental value.

If you hand me a necklass of pasta, it will have little to no value as the necklass doesn't solve any of my problems. Therefore, I can think of no use for it, and it will be of little situational or problem-solving value to me.

On the other hand, if my non-existant child handed me a pasta necklass, it would have great sentimental value. I would likely keep it forever since it has emotional value to me.

I think from a consumer standpoint, it is much much easier to sell physical objects on the sentimental or emotional value level, as people pay a premium for these things and and will be less concerned about price and more concerned about quality (i.e. if you said "honey I got the cheapest gold necklass I could find - see how much money I saved!", I don't think your relationship would last long ) Businesses are generally the opposite, as they want something that will help them increase profits.

On the other hand, consumers tend to want things that solve their problems, but they want to pay the least amount of money they can get away with to solve that problem. To them, if two objects equally solve someone's problem, they will pick the cheaper one. Businesses care less about this because they are willing to pay a premium to know for certain that a problem has truly been solved, and they are generally unwilling to spend money of a product that may or may not solve thier problems.

It has been my experience that if you are selling tangible items, trying to convert a physical product from a problem-solving value-added ("this survival kit will allow to survive a disaster") to an emotional value-added item ("your elderly parent will appreciate your care and concern for their well-being through the purchase of this survival kit") you will be far more successful.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Anon3587x]

In typing out a really detailed reply yourself, you are decoding your thoughts and understanding what value really is.

Let me recap what we have gathered so far.

what I understood from FDjustin's post:

Value must be advertised to the majority of your target audience.
ie. Lets say Hippies and Housewives would both be interested in your product, Hippies outnumber the housewives 3 to 1. So you would focus on advertising to the hippies through the correct vehicle of advertisement. While at the same time trying to make it appeal to housewives but with much more emphasis on the hippies.


If I understand your post right that is a very good point. Feel free to correct me if I misunderstood.

Now Throttleforward's basic concept was:

Your product should have problem/entertainment or basically any type of value. With emotion and sentimental value tied somewhere in between.

I also agree that is a great marketing strategy and it also makes perfect sense.

Ready2befamous you are also right. I am so inpatient to define value as others are to make money. I look at value as it is money. but in theory I'm not much different then those trying to get rich quick because my own outlook is value is money.
For the record that bump post was to keep this thread from falling off the recent posts section of the forum.

Now what I would really like to do with this thread is try to figure out why something could be valuable and hold all of the traits above. but just does not work out. Causing you to lose money and also your time. Basically a failed idea

Icy
Edit: Just another quick thing is that, that's a lot of text to consume. Perhaps consider editing it down. It's intimidating for someone looking to answer quickly

The text is extremely long because I feel I should explain exactly why I think this is such an important topic from my own stand point. I should edit it... but I'll leave it as is so one day myself and others can look back at how naive I once was. I'm not afraid of opinions I may receive or judgments made about me for being crazy.

People talk about Web 2.0
I'm going to enter Business 2.0

With Ego and Attitude directed through the right medium you are raising the bar for yourself in my opinion.

Forget the word humble, it will only hold you back. Attitude will get you anything you want in life.

How about this as an example. Throughout my posts I always say "in my opinion" to stay humble to a sense. To me at least.
I'm going to stop saying that cold turkey RIGHT NOW. I'll just start telling it like it is, if I'm ever wrong I'll admit it and that's fine.

I must be content with anything that may happen as a result of what I say or do.
Its better to have tried and failed or been wrong. Then to sit in the corner and wonder what could of happened, or waited for someone else to do it.

Of course everyone knows this. . . But how many people actually live that way?

Muhammad Ali once said


I figured that if I said it enough, I would convince the world that I really was the greatest.

This is so true on many many levels.

I take quotes and things I agree with to heart on a extreme level.
If it makes so much sense to me and I agree with it 100% I will not diddly dad around it. The words will become stone for me.

 

[biophase]

As I type this from a mountain top in Colorado, alot of the value of a product depends upon circumstances. I was in this same spot 4 years ago when we were caught in a hail storm. I had paid $2.95 for 2 green ponchos in Denver the day before. Two girls were caught in the storm wearing literally bikers spandex pants and jogging bras. What was the value of the poncho to them? I sold them to them for $100. Just kidding.

You can have the greatest burger in the world but it has no value to someone who just ate. You can't sell ice to eskimos, but does that mean that ice has no value at all?

So now look at products the same way. How do people perceive value when they shop? They either need it or just want it. Products that are needed will be purchased. You need toilet paper. You don't need but want an Ipad.

The items with need, you just need to convince the customer that yours is the best choice. So you market about why your 4ply soft toilet paper is softer on the butt. Nobody ever needs convincing that they need to buy toilet paper.

The items people want, you need to convince them that they NEED it. You make the Ipad look so great that they want it. You show its features and how it makes life easier. You don't compare it to another Ipad clone.

 

[Anon3587x]

Hey Biophase you would not happen to be in Vail would you?
I used to live in Colorado Springs, Colorado is such a nice place to live or visit.

Anyways Thanks for your input Biophase.

You perfectly explained supply and demand and helped me realize it DEFINITELY needs to be in the Successful Value Formula.

If people truly NEED it how could you fail?

Now were making major progress with the thread. I Really appreciate you sharing that.

The more I think of it supply and demand might just be the most important step to being successful.

Right now my Formula is looking something like this

Sp * V * Ad = Successful business

Sp = Supply & Demand
V = Value
Ad = Advertisement

It could be just as easy as that. . .
Maybe someone could shed a little more light on the topic if Anything is left out.

Before this thread is over I want to have a formula for Value, Advertisement, Supply and demand as well as a completed successful business formula. (It may just be completed though) I'd like just about everybody to eventually agree these formulas are correct before we can end the thread.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[biophase]

I am in Crested Butte, CO right now. I don't give any value to those formulas that you've been posting. There is really no such formula. You can go ahead and multiply stuff together like marketing, supply, demand, price, etc... But the formula means nothing really. How do you assign any variables to the front of the equation. If you make everything a 1 then you it means you see things equally. Can you put a 2 in front of marketing making it twice as important as supply? What happens if you put a .9 in front of Advertising, then it means that advertising decreases your success. The formula will not make any sense?

 

[Anon3587x]

I am in Crested Butte, CO right now. I don't give any value to those formulas that you've been posting. There is really no such formula. You can go ahead and multiply stuff together like marketing, supply, demand, price, etc... But the formula means nothing really. How do you assign any variables to the front of the equation. If you make everything a 1 then you it means you see things equally. Can you put a 2 in front of marketing making it twice as important as supply? What happens if you put a .9 in front of Advertising, then it means that advertising decreases your success. The formula will not make any sense?

Its mainly just a way of categorizing what needs to be done in a easy to remember fashion for the way I think.

It helps me add a picture to the thought.

Basically it's core concepts of business or whatever i'm trying to figure out typed in a quick easy to understand fashion. It's not ment to be the definite answer with each variable having a exact value. It can be flexible. More of an estimation.

Just a general consensus of the overall idea I suppose.

Let me figure it out and then tell me what you think of it.

 

[Anon3587x]

Sp * V * Ad = Successful business

Sp = Supply & Demand
V = Value
Ad = Advertisement

What is Supply & Demand?

Supply and Demand is how bad someone needs your value

This could be: they need entertainment due to boredom, Or they need supply's to help them deal with a hurricane that wrecked the town.

Supply and Demand is what spawns the Quote
"Disaster brings Opportunity"

So how do you capitalize on supply and demand? How convenient is your value to them?

Nv * C * P * L = S&D

Nv = Need of value (how bad do they need your value?)
C = Convenience (how convenient is it for them?)
P = Price (if its cheap why not?)
L = Logistics and Location (Can you get it to them fast?)
SD = Supply and Demand

What is advertising?

Advertising is how well and broad your potential customers are aware of your business through various vehicles. While using physiological stunts to make sure they remember and feel comfortable trusting your brand.

Br * V * Es * Qep * Na * Gp = A

Br = Brand Recognition (Wide Spread advertising)
Na = Niche targeted Advertising ( making sure the right type of people see your advertisements through the proper channels)
V = Viral
E = Emotional/Sentimental Attachment
QeP = Quick efficient explanation of product
Gp= Good publicity (trust with your brand)
A = Advertising

What is value?

Value is a problem that your solving by providing a item or service. Also known as a need. (the reason for this thread is the fact not all value is successful value)

N * Ps = V

N = Need filled
Ps = Product or Service
V = Value

Sd * A * V = Sv

Sd= Supply and Demand
A = Advertising
V = Value
Sv= Successful Value

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Anon3587x]

Nv * C * P * L = S&D

Nv = Need of value (how bad do they need your value?)
C = Convenience (how convenient is it for them?)
P = Price (if its cheap why not?)
L = Logistics and Location (Can you get it to them fast?)
SD = Supply and Demand

Br * V * Es * Qep * Na * Gp = A

Br = Brand Recognition (Wide Spread advertising)
Na = Niche targeted Advertising ( making sure the right type of people see your advertisements through the proper channels)
V = Viral
E = Emotional/Sentimental Attachment (must remember your advertisement and feel like they need your product/service)
QeP = Quick efficient explanation of product
Gp= Good publicity (trust with your brand)
A = Advertising

N * Ps = V

N = Need filled
Ps = Product or Service
V = Value


S&d * A * V = Sv

S&d= Supply and Demand
A = Advertising
V = Value
Sv= Successful Value

I don't feel content with these yet. Still need to work on them, I'll edit later. Feedback?

 

[Salinger]

You are listing elements that effect supply and demand, and advertising, etc., which is helpful to recognize in business. As I'm seeing it, you can't quantify (put a numerical value to) most of these. Therefore, you have no real equations.

Also, Supply and demand is not one thing. Supply is one thing, Demand is another.

I'd suggest taking an Econ 101 class, or at least reading some texts on basic economics.

I'm not trying to come down on you. In fact, given your desire to want to quantify these things, I suspect you may have the makings of a great economist.

 

[Anon3587x]

I really just write those so called "equations" as a way to help me remember compacted information.

I have a tendency to do things my own way without caring if anyone else understands or not. Sometimes it may make me seem a bit off the loop.

The value's those variables have are actual thoughts instead of numeric values. This is a practice you do not see to often.
Just a weird thing I like to do.
I wasn't offended at all, no worries. I enjoy criticism, you can only build off of it.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Rickson9]

I joined this discussion late so I apologize if I misinterpreted the original post.

I'll just speak for myself. I'm more of an investor than an entrepreneur. For me, price is what I pay and value is what I get (Warren Buffett quote). For stocks, assuming no debt, I want to pay 2x book and 10x earnings or less. For real estate, assuming no debt, I want to pay 5x gross annual rent.

When I stick to those two metrics I tend to do very well.

 

[Anon3587x]

I want to pay 2x book or 10x earnings or less. For real estate, assuming no debt, I want to pay 5x gross annual rent.

When I stick to those two metrics I tend to do very well.

Help me understand what I quoted a little better please.

For real estate if you were getting 1,000$ a month you would not pay more than 60,000$ for the house?

1,000$ x 12 months = 12,000$
12,000$ x 5 years = 60,000$

If I understand that correctly I'm good to go there.

But I do not quite understand what you mean by 2x book or 10x earnings.
This may be because I do not understand stocks as well as I could. Book and Earnings could very well be simple terminology.
But that seems like a interesting concept I'd like to comprehend better. If you could briefly just explain I'd be grateful.

 

[Rickson9]

Help me understand what I quoted a little better please.

For real estate if you were getting 1,000$ a month you would not pay more than 60,000$ for the house?

1,000$ x 12 months = 12,000$
12,000$ x 5 years = 60,000$

If I understand that correctly I'm good to go there.

You are correct. The aforementioned is my metric for defining value for real estate.

As background information, my education began with the interpretation of financial statements. Afterword, I looked at stocks and real estate. I found that the common language of financial statements made both stocks and real estate very easy to understand. Each industry uses different terminology, but they were basically the same (to me). Interpreting a value in stocks was the same as real estate - it just used different vocabulary to describe the same concepts (profit, expenses, earnings, return on capital, etc.)

An interesting exercise is to use financial statements to analyze a publicly traded real estate company or REIT on the stock exchange. Both are married together and described by financial statements. Anyway, I digress...

But I do not quite understand what you mean by 2x book or 10x earnings.
This may be because I do not understand stocks as well as I could. Book and Earnings could very well be simple terminology.
But that seems like a interesting concept I'd like to comprehend better. If you could briefly just explain I'd be grateful.

No problem. I'll give it a shot.

To keep it simple book value is also known as equity. I use tangible book which means that I strip out intangible assets such as 'goodwill'. It is also called 'net asset value'.

If a company has tangible assets of $1M and no liabilities then it's tangible book value is $1M. If the same stock is selling at $2M or less, then I would consider it.

If a company earns a net profit of $200K then 10x net profit is $2M. If the stock is selling at $2M or less, then I would consider it.

I use the two metrics in conjunction; it is not 'either/or' but 'and'. I will consider a company if it is priced at 2x book or less and 10x earnings or less.

In a turnaround, the P/E is extremely high because earnings collapse (hence being defined as a 'turnaround'). However, the P/B may be low. If an investor believes that a turnaround will occur, this may be a good investment (eg. Fossil Watches during the stock market crash of 2008).

In an asset play the P/B may be low; say 1 or less. An example would be a company that has a ton of gold or real estate on their balance sheet that isn't reflective of current market value prices. Even if the P/E is high; say 20, it implies that it doesn't earn much money, but may be a good investment as an asset play. The investor would be banking on the eventual realization of the underlying asset values (eg. McDonald's during the first U.S.-Iraqi war)

A fast growing start up may have a modest P/E but a high P/B. A fast growing start up may have huge earnings but because there is so much expectation on performance the price is also high. The high price is offset by the high earnings to give it a modest P/E. However, because the company is new, it doesn't have much equity because it has only been in business a few years. This may result in a very high P/B because the book is relatively tiny; dwarfed by the high price.

A high P/B may also indicate a lot of debt or leverage which is not desirable. A lot of leverage on the balance sheet shrinks book value and the price may easily dwarf it resulting in a high P/B. However, if the company earns a lot of money it may actually have a modest P/E of 10.

Anyway there are a lot of things to think about with these two metrics and I don't want to bore you with any more examples. The long and short of it is that the P/E and P/B metrics gives an investor a lot to think (and research) about and is the first step that I use to screen ideas.

Again, I am only speaking for myself and how I interpret data. I hope this helps.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Anon3587x]

If a company has tangible assets of $1M and no liabilities then it's tangible book value is $1M. If the same stock is selling at $2M or less, then I would consider it.

If a company earns a net profit of $200K then 10x net profit is $2M. If the stock is selling at $2M or less, then I would consider it.

When you say "Net profits of 200k" do you mean annually?

I think I'm starting to really understand your criteria, I like what I'm starting to understand.

Lets say Tricker trucking company has 1 truck worth 1 million dollars and no other liability's their book value would be 2million.
2x 1million= 2million, easy math.

Now if they earned 200k a year, by your criteria you would multiply that by 10 which would equal 2million.

Being that the booking is not less than 2x its price
and the earnings is not less than 10x its price

This would be a purchase you would consider?

It would only take you 5 years to make your investment back.
Which is practically the same formula you used for real estate.
I understand the connection, very nice brilliant.

You just joined the forum?
Glad you decided to sign up!
Welcome!

 

[Rickson9]

When you say "Net profits of 200k" do you mean annually?

Yes.

I think I'm starting to really understand your criteria, I like what I'm starting to understand.

Lets say Tricker trucking company has 1 truck worth 1 million dollars and no other liability's their book value would be 2million.
2x 1million= 2million, easy math.

Now if they earned 200k a year, by your criteria you would multiply that by 10 which would equal 2million.

Being that the booking is not less than 2x its price
and the earnings is not less than 10x its price

This would be a purchase you would consider?

Yes.

It would only take you 5 years to make your investment back.
Which is practically the same formula you used for real estate.
I understand the connection, very nice brilliant.

Between my real estate and stock investments the common denominator is me. My thinking ends up making the decision to invest in either market so it's not surprising that the criteria I use for either ends up being similar.

You just joined the forum?
Glad you decided to sign up!
Welcome!

Thank you!

 

[Anon3587x]

Between my real estate and stock investments the common denominator is me. My thinking ends up making the decision to invest in either market so it's not surprising that the criteria I use for either ends up being similar.

I see what you mean.

It is still possible to fail using these formulas. But you use your own intuition and brain power as a deciding factor in your decisions which is the common denominator linking the two for success.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Rickson9]

I see what you mean.

It is still possible to fail using these formulas. But you use your own intuition and brain power as a deciding factor in your decisions which is the common denominator linking the two for success.

If investing were fail-proof it would be called 'sure-thing-taking' instead of 'risk-taking'.

 

[Anon3587x]

Rickson9 allow me to give you a scenario and I'd like to know personally what you would do. I don't mean to demand answers from you if that is what it seems. But I'm very impressed with everything you have done and this forum can learn a lot from you.


Let's say you had a property which could bring in 1,000$ a month going for 55,000$.


The house required 15,000$ - 20,000$ in repairs making the grand total around 70,000$-75,000$

Would this still be something you would consider purchasing?
Or would the 15,000$-20,000$ repairs, or "liability" shine you away?

Again I'm just looking for your personal opinion on the matter.

I'm curious how you would handle such a situation when some random variables are thrown in.

 

[Rickson9]

Let's say you had a property which could bring in 1,000$ a month going for 55,000$.
The house required 15,000$ - 20,000$ in repairs making the grand total around 70,000$-75,000$
Would this still be something you would consider purchasing?
Or would the 15,000$-20,000$ repairs, or "liability" shine you away?

Can I get a 36% rent premium for spending 36% more for upgrading the unit?

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[Anon3587x]

Can I get a 36% rent premium for spending 36% more for upgrading the unit?

Lesson learned, ;p

 

[GreenHouses]

I joined this discussion late so I apologize if I misinterpreted the original post.

I'll just speak for myself. I'm more of an investor than an entrepreneur. For me, price is what I pay and value is what I get (Warren Buffett quote). For stocks, assuming no debt, I want to pay 2x book and 10x earnings or less. For real estate, assuming no debt, I want to pay 5x gross annual rent.

When I stick to those two metrics I tend to do very well.

Price and value are two different things, I agree.

The price of a share can fluctuate quite quickly but the value of the under-lying company usually changes much more slowly. They are clearly two different things.

So if they are two different things, price has nothing to do with value and therefore shouldn't be used to calculate value.

It looks like you are using P/B and P/E to determine whether a stock is at value or under- or over-valued.

But you haven't calculated the value of the stock in either case because you are using price as an input in both cases.

I saw in another post of yours that you strip out intangibles, look for high return on equity and low or no debt... I agree with each of these things.

But do you attempt to actually calculate the value of a listed company when you're analysing it as a potential investment?

I would have thought so, given that you'd be looking to buy it for less than its worth.

 

[Rickson9]

Price and value are two different things, I agree.

The price of a share can fluctuate quite quickly but the value of the under-lying company usually changes much more slowly. They are clearly two different things.

So if they are two different things, price has nothing to do with value and therefore shouldn't be used to calculate value.

It looks like you are using P/B and P/E to determine whether a stock is at value or under- or over-valued.

But you haven't calculated the value of the stock in either case because you are using price as an input in both cases.

I saw in another post of yours that you strip out intangibles, look for high return on equity and low or no debt... I agree with each of these things.

But do you attempt to actually calculate the value of a listed company when you're analysing it as a potential investment?

I would have thought so, given that you'd be looking to buy it for less than its worth.

If you referring to running discounted cash flow calculations I used to run DCF calculations until I realized that the results all ended up in a fair price of 2x book and 10x earnings or less. Now I use P/B, P/E and other metrics because it's easier to communicate this information to others.

So, although I appear to be using price as inputs, in actual fact I am making approximations on value using DCF and stating the result in terms of price-based ratios. A subtle difference.

I apologize in advance if you are not referring to DCF.

 

Dislike ads? Remove them and support the forum: Subscribe to Fastlane Insiders.

[GreenHouses]

DCF or a valuation based on equity, return on equity and % of earnings reinvested vs paid out as a dividend.