{"id":1443,"date":"2019-10-28T23:12:12","date_gmt":"2019-10-28T13:12:12","guid":{"rendered":"https:\/\/theonsitemanager.com.au\/news\/?p=1443"},"modified":"2019-10-28T19:32:25","modified_gmt":"2019-10-28T09:32:25","slug":"i-want-value-but-what-do-i-actually-want","status":"publish","type":"post","link":"https:\/\/theonsitemanager.com.au\/news\/i-want-value-but-what-do-i-actually-want\/","title":{"rendered":"I Want Value… But What Do I Actually Want?"},"content":{"rendered":"\n

\u201cValue : A\nquality or idea that is considered important. The word value<\/strong> comes\nfrom the Latin Valere, which means: Be worth. Value<\/strong> is defined\nas the worth, usefulness or importance of someone or something.\u201d<\/em><\/p>\n\n\n\n

Courtesy of\nProfessor Google<\/em><\/p>\n\n\n\n

Value for money. I value our friendship.\nValue versus return. My personal values. Value of my personal wealth.  Valuations. \nLoan to valuation ratio. Value of the dollar. Value of my time. Our\ncorporate values. <\/p>\n\n\n\n

Value Value Value\u2026\u2026\u2026\u2026\u2026\u2026\u2026.it\u2019s a blur but\nwhat does it really mean?<\/p>\n\n\n\n

I\u2019m prepared to have a crack but first, a\ncaveat.  Given that trying to discern\nvalue in its many forms is a bit like attempting to quantify the meaning life\n(if anyone knows, call me please) I will confine my observations to management\nrights, motels and the like.<\/p>\n\n\n\n

Let\u2019s start with the age-old misconception\nthat price and value are somehow joined at the hip.  They are not. \nIt is true that the amount paid for a good or service may create some\nsense of value for a consumer but make no mistake, price is not the principle\ndriver.  A great example is the cost of,\nlet\u2019s say, a legal due diligence report. \nIs the best value the cheapest quote that fails to cover the bases or the\ndearest quote that ends up saving the buyer from possible bankruptcy?  In my mind the value lies in the outcome and\nif El Cheapo Lawyers miss crucial matters that place a consumer at risk then,\nat whatever price, there is no value in the service.  You get what you pay for and paying for\nsomething that doesn\u2019t do what it says on the box makes no sense.  There is no value other than the illusion\n(delusion?) that a part of the process has been ticked. <\/p>\n\n\n\n

I would argue that if there is any real\nlink with value it lies in quality, not price.<\/p>\n\n\n\n

In my mind the broader way in which we\nshould be looking at value is inextricably linked to risk, quality and return.\nIn our game the perception of value, as defined in the minds of buyers, is\ndriven by numerous factors, some material and some imagined.  There are those who would argue that the\nmarket drives value but what is the market of not the cohort of buyers who\nevaluate opportunities and make investment decisions accordingly.  Some will see value in a proven business being\nsold on a 6.5 times multiple while others will see value in lower multiples for\nhigher risk struggling businesses with upside and the opportunity for higher\ncapital growth. Neither buyer is wrong.  It\u2019s\njust that both must understand the dynamic at play. The whole value\/risk ratio\ngets out of kilter from time to time and that\u2019s when buyers come unstuck.<\/p>\n\n\n\n

If we take the value concept one step\nfurther, we meet the elephant in the room. Yep, you guessed it, very very cheap\ndebt. Our domestic interest rates are at record lows so even at quite high\nmultiples the value equation, seen through the prism of return on equity, is\nabsolutely compelling. It won\u2019t always be thus.  At some point (don\u2019t ask me when) rates will\nstart to go the other way and value will erode. \nThe cost of debt has a positive impact when rates are low and a double\nwhammy when rates are high.  As rates\nrise less people feel comfortable borrowing and those who do have less money to\nplay with, so demand suffers.  In our\ngame that\u2019s not just demand for the assets we sell, finance or otherwise\nadvise, it\u2019s also demand from travellers who are in turn impacted. Basic\neconomics tells us that price and demand move in concert so any fall in demand\nwill have an inevitable impact on value.<\/p>\n\n\n\n

I guess the point here is that value, risk ,\nquality and return are inextricably linked, and we need to ensure we bear this\nin mind at all times. Value can be quickly eroded by changes in the\navailability of capital and the cost of debt together with roll-on impacts on\ndemand.  A prudent buyer or advisor will\ncertainly take future probability into account when making investment\ndecisions.<\/p>\n\n\n\n

In closing a few thoughts on retaining\nvalue.  I\u2019ve written about body corporate\nand landlord relationships and communication before so let\u2019s focus on value as\na mathematical outcome.  In the somewhat\nesoteric world of economists and valuers there lurks the concept of the net\npresent value of future cash flows.  Put\nsimple, mainly because that\u2019s the only way I can, a future income has a value\ntoday.  Put even more simply, your\nagreement top up or lease term extension has a real and tangible value.  A 5×5 motel lease or a 25 year caretaking\nagreement is worth more than a 5×2 lease or 15 year agreements.  Like any commercial arrangement or investment\nthat makes you money, the longer you can lock in the income the more it\u2019s\nworth.<\/p>\n\n\n\n

I reckon there\u2019s almost never any real\nvalue in cheap and cheerful. You get what you pay for and if you don\u2019t pay much\nyou don\u2019t get much. The trick is to determine how much you want to pay and what\nyou are prepared to accept.  If you don\u2019t\nmind running out of oxygen at the top of Everest then surely the cheapest\nexpedition will do.  For me, a few extra\nbottles of air would be well worth a few more dollars spent.<\/p>\n\n\n\n

That\u2019s value.<\/p>\n\n\n\n

PS : If you are a business borrower here\u2019s\nsome unsolicited advice.  Take a leaf out\nof the residential property sector and use this historically benign interest\nrate environment to pay off debt and build a rate rise risk buffer.  I shall refer to this in future as the\nRBARRRB\u2026\u2026there will be a test.<\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cValue : A quality or idea that is considered important. The word value comes from the Latin Valere, which means: Be worth. Value is defined as the worth, usefulness or importance of someone or something.\u201d Courtesy of Professor Google Value for money. I value our friendship. Value versus return. My personal values. Value of my personal wealth.  Valuations.  Loan to valuation ratio. Value of the dollar. Value of my time. Our corporate values. Value Value Value\u2026\u2026\u2026\u2026\u2026\u2026\u2026.it\u2019s a blur but what does it really mean? I\u2019m prepared to have a crack but first, a caveat.  Given that trying to discern value in its many forms is a bit like attemptingRead More →<\/a><\/p>\n","protected":false},"author":1046,"featured_media":1444,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_mbp_gutenberg_autopost":false},"categories":[3],"tags":[],"_links":{"self":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/1443"}],"collection":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/users\/1046"}],"replies":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/comments?post=1443"}],"version-history":[{"count":1,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/1443\/revisions"}],"predecessor-version":[{"id":1445,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/posts\/1443\/revisions\/1445"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media\/1444"}],"wp:attachment":[{"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/media?parent=1443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/categories?post=1443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/theonsitemanager.com.au\/news\/wp-json\/wp\/v2\/tags?post=1443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}