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What is Something’s Value?

January 15, 2015

Reading the front page of yesterday’s Wall Street Journal got me thinking about how value is created or perceived and the trigger for this was a bull that just died. 

During its lifetime, 500,000 offspring resulted from this bull’s semen resulting in tens of millions of dollars revenue for its owners.  The breeder sold the bull who just died 23 years ago for $4000.  However, he said he has no regrets since the notoriety resulted in substantial revenue from his other bulls and fame for his dairy.

Another article was about the new found value in the “Made in the USA” label.  Those that stuck to manufacturing in America have added value not only from latent patriotism, but from a more competitive landscape here even with the strengthening dollar.  Wages and benefits are stable while low wage countries are seeing unpredictable increases and political interference, low cost domestic energy, availability and use of state of the art technology, lower shipping costs, a reemerging supply chain and infrastructure and more reliable quality control.

Hillary Clinton knows the value and perception of adding John Podesta to her “exploratory” staff.  This raises her ability to get contributions and creates a barrier for whomever her competition might be.

Tuesday’s stock market roller coaster was pictured on page one showing a 424 point DJIA price swing.  Seems like there were more sellers than buyers pushing the index and stock values lower.

Leaving the front page and looking at the back page of the New York edition told how Nets owner Mikhail Prokhorov might be interested in unloading the 80% interest he acquired for $220 million plus coming up with his share of last season’s $144 million loss.  Steve Ballmer’s recent purchase of the Clippers for $2 billion changed the methodology for valuing a professional basketball team and Mikhail might just reap unanticipated profits if he sells.

The point to all this is that values constantly change.  Valuing a business or undertaking takes more than a sharp pencil and a neat spreadsheet.  It takes awareness, imagination and a visualization of cash flow creation and perception of possibilities emanating from the ownership.  At the end of the day, sellers need buyers who think what they are buying is undervalued.  And that is what determines something’s value.  And, that’s no bull!

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