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Full-Text Articles in Business
There Should Be Little Or No Liquidity Discounts For Controlling Interests In Closely Held Businesses, Michael Sack Elmaleh
There Should Be Little Or No Liquidity Discounts For Controlling Interests In Closely Held Businesses, Michael Sack Elmaleh
Michael Sack Elmaleh
The application of liquidity discounts to the appraised values of controlling interests in closely held businesses reflects a failure of the valuation community to fully appreciate the fact that these equity interests belong to a fundamentally different investment class than publicly traded securities. Investors in publicly traded securities have dramatically different expectations about the benefits and sacrifices of such investments, compared to the expectations of benefits and sacrifices of investors in closely held companies. Investors in publicly traded securities expect their minority interest investments to be highly liquid, yield free cash flow, and require no participation in the management of …
Investing In A Better Job, Michael Sack Elmaleh
Investing In A Better Job, Michael Sack Elmaleh
Michael Sack Elmaleh
Investing time and money to attain "something" that allows a person to earn more in future wages is economically rational, if the present value of the additional future wages exceeds the present value of the investment cost in time and money to attain that "something". In our market economy, these attained "somethings" include college degrees, vocational and professional certifications, and equity ownership in small closely held businesses. Most small closely held businesses require the full time active management of the owner. Little or no free cash flow would be available to the investor if they chose to hire a non …
What Do The Ibbottson Historical Studies Really Prove About Firm Size, Risk And Return?, Michael Sack Elmaleh
What Do The Ibbottson Historical Studies Really Prove About Firm Size, Risk And Return?, Michael Sack Elmaleh
Michael Sack Elmaleh
I deny that the Ibbottson historical studies prove that small and medium caps outperform large caps because they are more risky. First, I question whether covariance measures are necessarily a good proxy for risk. The higher levels of volatility associated with small and medium cap versus large cap may be a statistical artifact: the greater number of transactions associated with large caps as compared to small caps may account for this difference. Secondly, higher returns on small and medium caps may be a function of less efficient information distribution for these securities as compared to large caps. Finally, can we …
The Relativity Of Risk Assessments In Investment Decisions, Michael Sack Elmaleh
The Relativity Of Risk Assessments In Investment Decisions, Michael Sack Elmaleh
Michael Sack Elmaleh
The level of risk in investing in a closely held firm is related to the qualifications of the control managing investor. While there is generally a minimum threshold of expertise and capital that a control investor must possess, beyond this threshold the potential levels of expertise and capital can vary significantly. The level of enterprise risk is inversely related to the level of expertise and capital possessed by the control investor. The more resources and expertise the investor possesses, the less the operational risk. Thus enterprise risk is a relative and not an inherent fixed property of an enterprise. Furthermore, …
The Income Method Of Valuation: A False Analogy Between Bonds And Stocks, Michael Sack Elmaleh
The Income Method Of Valuation: A False Analogy Between Bonds And Stocks, Michael Sack Elmaleh
Michael Sack Elmaleh
The discounting of future income streams by a risk adjusted rate of return by proponents of the income method reflects a misplaced faith in the ability to project accurately future income streams and pick out the “right” rate of return. Future income streams are fairly reliably predictable when analyzing a debt instrument. However, equity investment future income streams are notoriously unpredictable. Similarly assessing the risk associated with realizing returns from a fixed security is comparatively easy in comparison with assessing the risks associated with equity returns. The widely used Beta has not proved to be a very stable measure of …
Do Investors Demand Higher Rates Of Return On Risky Investments In Closely Held Small Businesses?, Michael Sack Elmaleh
Do Investors Demand Higher Rates Of Return On Risky Investments In Closely Held Small Businesses?, Michael Sack Elmaleh
Michael Sack Elmaleh
Investors in small closely held firms often are oblivious to risk if the rewards are perceived to be sufficiently high. Risk may also be ignored because such investors seek more than just increased cash flow. These investors often seek higher order psychological returns such as job challenge and status.
The Role Of Valuation Specialists: Telling It Like It Is Or Telling It Like It Ought To Be, Michael Sack Elmaleh
The Role Of Valuation Specialists: Telling It Like It Is Or Telling It Like It Ought To Be, Michael Sack Elmaleh
Michael Sack Elmaleh
While the buying and selling of businesses based on formulas may not be the soundest method of pricing a business the more rigorous methods do not always provide the best guidance either. Ideally prospective buyers should have knowledge of both formula methods and the more rigorous approaches.