13 Oct Fred Russell Knows Value, Investments

In today’s Tulsa World, Fred Russell is quoted as saying, “The value of something depends on what other people are willing to pay.” This may seem like common sense but people commonly forget it in practice. They waste a lot of money as a result.

Mr. Russell’s comment was in an article that appeared in the business section titled, “Dollar Thrifty Investor Lets Go of 5.5% of Shares.”

The price of a Dollar Thrifty equity share has fallen a bit from it’s high – when Hertz and Avis were battling it out for the right to purchase the company. As the article states, the largest shareholder has sold a majority of its stake in the company. Thrifty threw in the towel last month and, despite that the remaining bidder offers $55.33 per share, shares are now trading around $48.

Russell explained, “Right now, there’s only one serious buyer left. I’m not sure Avis feels the same pressure as when Hertz was in the ring.”

Some things are just not as complex as they sometimes are made out to be. As Fred Russell explains, the value of something is simply a function of what someone is willing to pay and willingness to pay rises when there’s competition. That’s why we at Acquisition Advisors always say, “If a business owner wants to sell and he has just one buyer, who really has whom?”

Does the seller have a buyer or does a buyer have a seller?

The only way to extract maximum value for a business, or any asset, is to identify the “highest and best buyer candidates” and work them simultaneously. One buyer won’t get the job done. That’s why “for sale by business owner” just does not work when the asset is illiquid, such as a private business or real estate.

Business owners, for example, are just not able to do the work required to locate all of the best buyer candidates and then herd them simultaneously through a process. And even if they were, the buyer is not the one to ramrod the process. When the broker or M&A advisor says, “Have your bids in by next Tuesday,” “X dollars is not going to cut it,” or “Hey, seriously, this business is worth X,” he or she is smart and skilled and doing his or her job. When the seller says these things he’s a jerk, greedy, desperate, delusional, or all the above.

Fred Russell knows what drives value. Listen to his advice and you’ll earn higher returns.