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Most of us understand the price of something. You probably purchase gasoline for your car or your spouse buys gasoline for the push mower twice a week. The price you pay suggests some form of relative valuation based on what you paid recently or in some historical context. Because gasoline bought at the 7-Eleven is the same gasoline bought at the Quickie Mart (not exactly but very close), price is a fair assessment of its value.
Price is easy, but I wonder how many understand the value of something when it comes to the capital markets? There is a difference. Valuation skills are a necessity in our line of work. Clients expect us as professionals to translate prices into value. Investing in good value helps clients achieve their goals. Consistently over paying for investments means consistent underperformance. But valuation skills require understanding more than just the market data reported on Yahoo finance or Finviz. Thinking that Celgene and Disney are similar investments based on similar P/E’s would be a mistake.
More work should be done to determine if value exists. Skills are needed. Understanding accounting is important, but not well understood by many advisors. Understanding the financial statements is also a must, but not the template version available on most financial sites. Many times the most important stuff is in the management’s discussion of what took place during the reporting period.
Lastly, is the importance of understanding the narrative of an investment. In other words, being able to tell your clients why something is a good investment and why the price they are paying makes sense within a portfolio. Obtaining the right skills for any profession is critical to long term success. In the business of investing, being able to report prices to your clients is not enough. Discerning decisions about value versus price sends a good message to your clients and affirms your role as an investment professional.
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SCI Highlights
Riskalyze Webinar
Mark your calendar… September 20th we will be hosting a webinar presented by Riskalyze to demonstrate their award winning technology. Invitations with the details will be emailed this week…
If you want to test drive the Riskalyze risk assessment with your next new SCI account, contact Bob Dunne for your login and to set-up a demo time.
New SCI Advisor Portal
Advisors.SaltCreekInvestors.com If you want a training demo on using the new client portal, contact Bob Dunne for your login and to set-up a time.
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