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Illusion of Value

January 16, 2014

Target had a breach in their security where over 100 million customers’ credit cards and other personal information might have been “stolen.”  Governor Chris Christie’s aides created a 4-day traffic mess without his knowledge.  Lawyers and tax accountants regularly get indicted for failure to file their own tax returns.

All these acts had the effect of reducing confidence in the organizations or people involved and accordingly reduced their value.  Reputations take years to establish and minutes to destroy.  Reputations are a valuable asset that can be measured in the near term effect by the loss of sales by Target and/or a drop in the price of its stock; the near, and possibly long term, regard for Gov. Christie as a leader and viable Presidential candidate; and by the loss of clients by the trusted professionals that neglected to so something so simple that everyone else does.

I perform many business valuations and tend to think of things in terms of value added or reduced.  Frankly, much of what I do represents a calculated value to fulfill a purpose such as for gift planning or estate tax purposes, employee compensation, or to present a value in a business break up or martial conflict.  But, none of the values are real – the real values are determined by an actual sale and then that value is valid only for that seller and that buyer at that time, for the terms negotiated and because of the purposes, motives and pressures causing the sale.  Perhaps a death compelled the family to sell a business quickly; or a business is sold so the owner could escape bankruptcy; or a buyer wants to get access to certain customers; or the key people working for a company offer to buy the business threatening to quit and start up their own company if it isn’t sold to them.

Stock market values are likewise illusory.  Solid companies miss earnings by a few pennies, or announce a bad year coming up and billions vanish overnight.  A new CEO or a fired CEO similarly can cause wide swings in values.  In the last couple of years even the stellar Dodgers and Mets baseball teams had values appear or disappear through no cause of what happens on the field.

Much value is illusory.  In planning for your future financial security understand this… When making investments of any type, don’t be deluded by current or immediate circumstances, but consider the long view and the potential for value creation, or destruction.

And when conducting your affairs, do so in a manner that will not harm, ruin or leave your reputation exposed.

Don’t be stupid!

2 Comments leave one →
  1. Phil Goldschmiedt permalink
    January 16, 2014 9:20 am

    There is NO “illusion of value” when it comes to the advise and guidance of Ed Mendlowitz
    It’s consistently “Golden”!

  2. January 17, 2014 1:10 pm

    Thank you.

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