Jigsaw Puzzle of Semester III [wk74]

3 semesters! The third has been the quickest yet. Continuing on from my patchwork curriculum started in week 20 and picked up again in week 44, I list below a few key take-away learnings.

[The attraction of equity investments in unquoted companies is that their performance is uncorrelated to quoted equities.]

Piece 15. Private Equity
Liquidity comes at a heavy price in the shape of lower returns. If you can structure the cashflows correctly, it makes sense to invest in illiquid private equity, not just for portfolio diversification, but also for the illiquidity premium. But computers says no. The mantra is that this alternative asset class does not plug into the pension fund model. So then, what is broken? The asset class or the model.

[To the financier, risk is all about the volatility of historic returns.]

Piece 16. Applied Corporate Finance II
I cannot be a financier then. I must be the layman, because for me, historic returns don’t really cut it. What about your capital risk? Case study after case study, applied corporate finance offered real insight into a management’s responsibility to grow the intrinsic value of a company over time, whether or not market capitalisation is above or below this value. Absolute risk vs relative (index-linked) risk.

[It is the threat of a hostile takeover that in fact keeps management teams of quoted companies delivering the value creation that shareholders require.]

Piece 17. Mergers and Acquisitions
A merger is when A + B = C. An acquisition is when A + B = A. So who would want to be a target for acquisition?! But hold on a second, what makes an attractive target? Answer: well-known brands, limited debt, no one else targeting it, future profitability, significant assets, good people. Aren’t these the hallmarks of a good company? An unexpected reward for success.

[Being an acquisition target is the flip side of fast track venturing.]

Piece 18. Strategic Fast Track Venturing
What are returns an entrepreneur would require to justify undertaking a venturing project? So taking a 3-4 year time horizon, what is the opportunity cost of forgone income, the high risk of failure (circa 75%) and the implied rate of growth? The maths make interesting reading! You soon start think fast-track scale and exit.

[Exit value is all about predictable future cashflows - an output of some strategic investment in a well positioned brand identity.]

Piece 19. Strategic Brand Management
There are so many definitions for a brand. But put simply for me, it is made up of three parts: a mark, a product/service, and some intangible promise. As such they come to represent and give currency to the value of a business. When positioning the brand, think relevant and meaningful (CUSTOMER) , point of difference (COMPETITION) and deliverable and consistent service experience (CAPABILITY). That is what creates a strong brand identity.

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