Category: Alternative Investments

Alternative Investments, Decision Making

Luck, Casino Gambling and Decision Making

Gregory Pearl

I’ve known a few people with gambling problems.  Some research indicates that 4% of active gamblers develop a problem. A gambling problem is never good.  Observing their gambling issues stimulated my interest in the psychology of gambling and how it affects those people. More interesting is how the same psychological traps that gamblers fall into also affect business decision-making in a broader sense.   There is a wider application than just the “controlled” setting of gambling games. Decision theorists have developed an entire field of study called Game Theory that, in part, looks at this.  Applying game situations and their related…

Continue Reading→

Alternative Investments, Buying & Selling a Company

Sky High Prices To Buy A Company? What Can Buyers Do?

Gregory Pearl

When an economy is growing and strong, the prices of companies for sale tend to rise. Sometimes a company is priced in a high range even if the overall economy is weak. Higher prices mean higher risk for everyone but especially for financial acquirers. Sky-high prices decrease the chances that the deal will close. What can a buyer do in these circumstances especially when only limited capital is available? Add some sort of unique value? Only invest in a minority stake? Buyer smaller companies? Joint Ventures? Maybe some sort of creative structuring? Here are some more ideas: First, buyers should…

Continue Reading→

Alternative Investments, Culture and Ethics

Does Impact (Social Good) Investing Work? Why Not?

Gregory Pearl

Are you skeptical of Social Investing? Does ESG (Environmental, Social and Governance) investing actually create value and achieve the social good it claims? Is investing and managing for the overall Social Good affected by the American business culture? Some may think these questions are controversial. Capital flows continue to flow into ESG oriented funds but these have not performed as well as those that do not have the same investment policy. Note the commentary of none other than Aswath Damodaran, professor of valuations at NYU Stern school of business. On his blog he states: “Companies have come under pressure to…

Continue Reading→

Alternative Investments, Business Valuation, Buying & Selling a Company

Seven More Factors That Will Change the Value of Your Business

Gregory Pearl

My last article listed seven factors that can and will affect the value of your business. That list was not comprehensive. There are more. Here are seven more factors you, the owner of a privately held business, should consider. The additional seven-factors are: 1) Narrow Customer Base (Concentration) lowers value. Most successful companies try to reduce dependence on a few large customers. Should any one customer be lost, the effect on business earnings is then minimal. The more loyal and diverse the customers that a company has the higher its value. It is even better to have long-established contracts with…

Continue Reading→

Alternative Investments, Business Valuation, Buying & Selling a Company

Seven Factors That Will Increase The Value of Your Business

Gregory Pearl

What do Buyers specifically look for when buying a business? Or stated another way, what factors affect business value? What increases or decreases business value? There are many things that affect business value. Some may be obvious others not so much. But all will require that you, the business owner, pay attention to them. Here are seven factors to consider. 1) Poor Quality Financials. Having poorly prepared financial statements means the Buyer may not know what he/she is buying. And there may be hidden problems in the company. It is best to have independently audited financial statements that do not…

Continue Reading→

Alternative Investments, Business Valuation, Buying & Selling a Company

How Do Buyers Value a Business? (Danger: Wonkish)

Gregory Pearl

The overriding theme of business valuation for Mergers & Acquisitions is that anything that increases Cash Flow increases the value of the business.  Cash Flow (not profits) is the most important factor. The methods listed are for established businesses with ongoing revenues.  Valuing startups is another thing entirely. The specific technique used to value a business can vary, and the use of any depends on what the buyer prefers.  But here are some common ones. Smaller businesses bought by an owner/operator tend to be valued based on: a multiple of Seller’s Discretionary Cash Flow (Owner’s Salary & Benefits + EBITDA…

Continue Reading→

Alternative Investments, Exit Planning

Yet Another Reason Why Indexing is Best for Most DIY Investors

Gregory Pearl

Patrick Luo is a doctoral student at Harvard. He published a new study that supports the idea of just how hard it is for the average investor to achieve returns better than the market when trading individual stocks. The paper is called: “Talking Your Book: Evidence from Stock Pitches at Investment Conferences”. His research shows that well-known hedge fund managers – those private investment firms that often control billions in investment funds –  often publicly pitch the stocks they currently own as great investments. Then, after the stocks rise quickly due to the publicity, the hedge funds will sell them…

Continue Reading→