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On the east coast they buy assets, in the midwest they buy sales, on the west coast they buy ideas. Valuation is subjective dependent on how you evaluate fpv. R
by pcarolan 11y ago
On the east coast they buy assets, in the midwest they buy sales, on the west coast they buy ideas. Valuation is subjective dependent on how you evaluate fpv. Risk quantification is not a science it is an art. Capital allocators are allowed to evaluate roi however they want my point is that the current trend of marking down companies isnt a sign of decreased value it is a signal of decreased risk appetite.
- golfer 11y agoI've never heard the regional "apetite" broken down like that before. But it feels right. I'd love to see some numbers/more data on this regional mindset.
- cylinder 11y agoWhat do you mean by buy sales?
- phamilton 11y agoThey invest based on a sales driven valuation. Stated less cleverly: The East coast places a premium on assets. There is an expectation that these assets will increase in value. Think mortgages. The Midwest places a premium on sales. Think GM/Ford and the Detroit auto industry. The West places a premium on ideas, a la Silicon Valley. The point being made is that East coast and Midwest investors have very different notions of valuations from West coast investors. Perhaps the recent write downs are unprecedented not because we are in a bubble, but because we've never had non West coast investors be this active on the West coast. Edit: I'm not terribly opinionated here, just elaborating on the original point.
- vasilipupkin 11y agothere is some truth to the idea that midwest investors are more conservative, but fundamentally businesses exist to deliver earnings. Sure, when they are not profitable and are growing their revenues really fast, this may be an indication of future high earnings - but as soon as that growth rate comes down, so does the valuation. It's a mathematical fact which has little to do with geographical location of investors
- phamilton 11y agoI think there's a lot of ambiguity in valuation. P/E for a public company is very much a matter of confidence and perception. Culturally, different groups will perceive a company in different ways. The same group will perceive similar companies differently. It's all over the map. In public markets things stabilize to a common view. That's the effect of liquidity. But private markets without that liquidity can have divergent investor perception.
- cstejerean 11y agoI get the point you are trying to make but mortgages are not a good example of an asset that appreciates. The underlying real estate my appreciate in value, but the mortgage itself does not. Investing in mortgages would be an example of a fixed income security. You can of course invest in derivatives like credit default swaps which may appreciate in value, but at that point you are not buying mortgages, you are basically buying insurance (which can appreciate in value if the thing you are insuring against becomes more likely to happen).
- pfarnsworth 11y agoYou're incorrect. If interest rates drop, then the value of the mortgage increases. But without that, you're getting a return from the interest of the mortgage. If you have a strip bond, where you pay a deep discount to the value of the bond, with no interest payments, then your bond does indeed gain value over time.
- baus 11y agoYeah except the biggest commodity market is in the Midwest.
- pfarnsworth 11y agoYou sound like you're from the East Coast.