“Apple is worth $2,000,000,000,000. That is a lot of money” said Anthony Pompliano on Twitter the other day. Dave Collum promptly corrected him: “priced at.” This is a very important and warranted distinction. We talk about the market capitalizations of companies all the time, but less often we think about what it actually implies.
For Every Buyer there is a Seller
The current price of a publicly traded stock is the most recent point where the most willing seller and most eager buyer matched. So when Apple stocks ended a trading day at $498, the last buyer and seller that were matched were willing to do business for that price. For someone to buy, someone also has to sell.
But the market price only gives us some information about the marginal sellers and buyers. One an average day, somewhere between 100 to 200 million shares of Apple stock will change hands. That’s a lot of shares. On particularly busy days, this will exceed 300 million. On a slow day, however, as little as 50 million shares will change hands. But Apple has 4.35 billion shares outstanding. So, even on the most hectic days, less than 7% of the outstanding shares will change hands.
The 7% figures is likely deceptive as high frequency trading and other forms of day trading and market making might overstate the fact that the majority of stockholders will not sell on a given day.
Therefore, the market cap and stock price of a company will tell you where it is priced at by the market. it won’t tell you where the stock is valued at by the market.
I like reading books on business history and biographies of business people. One thing that I feel is often a common thread in there stories is that substantial wealth creation often seems to stem from some combination of leverage and arbitrage.
I’ll elaborate. Often, the initial businesses are created around some sort of arbitrage. The arbitrage might be that the entrepreneurs have some information or ideas that others don’t. But an arbitrage usually doesn’t sustain. Once the word is out the trade gets crowded, which in turn erodes the profitability.
Some arbitrage are more sustainable than others and cane be ridden for longer. And I suapect that there are plenty of business people out there that found powerful arbitrages to take advantage of and did so for a long time. The reason we never heard about them, is because they were constrained. They were not scalable. They couldn’t not be levered.
If you have an arbitrage, however, that is defensible and has the potential to be leverad to a larger scale, you have the components of substantial wealth creation.
Here are a few examples:
Sam Walton realized that by buying cheap and pricing low, he would create operating leverage, by maximizing inventory turns. He realized that the big stores would not go to smaller towns, an opportunity that he was able to arbitrage for a very long time.
Kirk Kerkorian built his initial wealth through a unique albeit limited arbitrage. After WWII, Kerkorian borrowed money to bid on surplus bombers which he picked up abroad and flew home. At the time, there was a shortage of jet fuel and Kerkorian was able to sell the remaining fuel in the bombers’ fuel tank. Selling the fuel raised enough money to repay the loans he had taken. He essentially got the planes for free.
Sam Zemurray made a fortune in the banana trade. In his early days, he took advantage of a brilliant arbitrage opportunity. When banana cargo came to New Orleans, bananas that were spotted were deemed unfit for the travel to metropolitan locations and were discarded at the port. Zemurray bought the ripe bananas very cheaply and sold them locally to grocers within a day of New Orleans. To get the bananas to grocers fast, he leveraged the train system.
Here at How to Value Stuff, we are all great admirers of Rory Sutherland. Rory is the head Ogilvy Advertising – founded by David Ogilvy, another man we greatly admire. David wrote a legendary book on marketing and sales, called Ogilvy on Advertising – and one of the most influential advertising professionals in the world today.
Here are 10 rules you can adopt which will help you profit by being less logical than everybody else:
1. The Opposite of a Good Idea can be another Good Idea
Nobody can blame you for getting at a single right answer regardless of the materials you used to get there. Conventional logic uses the idea of a single right answer. This is mostly needed where your job is in the line and you need to make everything right.
When it comes to driving at a single right answer, no subjectivity is involved in decision making and what you decide is what you deem right.
2. Don’t Design for Average
Solving a problem with an average person in mind is very difficult. Some models in conventional logic require you to solve a problem for people in aggregate. This can make problems very difficult to solve.
Do not limit yourself to the average person and focus on the fringes. That way, it is easy to find things that will be adopted by extreme consumers. They can then be ploughed back in the mainstream.
3. It Doesn’t Pay to be Logical if Everybody Else is being Logical
Being logical in business will get you to the same place just like everybody else. In business strategy, it does not pay to be logical because being logical will get you to the same place where your competitors are going. In business, you need to be differentiating yourself away from your competitors.
Find out what your competitors are logically wrong about. If you find out what is wrong with their model, you are in a position to exploit it. Adopt contrarian thinking.
4. Our Attention affects Our Experience
The nature of our attention affects the nature of our experience. Quality is relative. The perception of quality is determined by the difference between expectations and experience. It is more difficult to change how a person experiences something than the expectation of that experience.
Rory gives an example of one of the best hotels he has stayed in. The hotel had previously been a prison or a police station. Everything from the bed and bathroom to the TV and wall hangings was very spartan nature.
Under most circumstances, you normally would have experienced this as a lack of quality. But the hotel was in East Berlin and the experience came across as authentic East Berlin. It fit the circumstances. It met what you would have expected from an authentic East Berlin hotel.
5. If there were a Logical Answer We would have found it Already
If a problem becomes persistent even after discussing it with every person who can relate to it, it means you are giving it a logical explanation. There is a solution somewhere to be found through conventional linear rationality approach.
Exposing everything to logic and the problem persists, it indicates that logic is not the answer to that problem. Gather some courage and test less rational solutions. Context is a marketing superweapon.
6. The problem with Logic is it Kills off Magic
Logic and magic cannot coexist. There is no magic where logic is involved. The rules of logic demand that there can be no magic.
Logic requires that you change your product instead of improving the perception of the product in order to enhance the customer experience. This confines you into doing exclusively objective things because you think that people perceive the world objectively.
7. A Good Guess which stands up to Empirical Observation is still Science
You should not let methodological purity restrict your capability of coming up with multiple solutions. It is good to allow solutions that come in randomly rather than being restricted to explainable solutions. The latter will hold you captive and will monopolize your progress.
8. Test Counterintuitive Things because Nobody Else will
Since you do not want to put your source of livelihood on the line, create a space in your business where you can test things that do not make sense. This will be an advantage to win over your competitor because your experiment will land you in a lucrative business idea that will make you outdo your competitors.
9. Don’t Solve Problems using only Rationality
Solving problems using only rationality is like playing golf using only one club. Using rationality as the only way of solving a problem will get your solution based on a very narrow path.
Solving problems by using only rationality will generate solutions that restrict themselves to a very narrow definition of human motivation and how they think, act and decide.
10. Dare to be Trivial
Sometimes big problems do not require huge intervention. On the contrary, a small thing can have an enormous effect. You do not have to do things in the correct order simply because it is the way they should be done. Small changes, such as alternating the order of options or changing relative scales, can yield an order of magnitude in results.
So you have decided to sell your small business or company. The very first thing that crosses through the mind of most people (and rightfully so) is the question: how can I maximize the value of my exit? The key here is getting the right broker for the job.
The task of finding the right partner to help you sell your business is no easy. There are countless examples of owners that ending up choosing the wrong broker or having a misaligned incentive structure with their broker. As a result, they fail to get the right buyer or fail to close a sale. The repercussions of choosing the wrong broker can be drastic.
However, if you choose the right intermediary for your business exit, there is a possibility of obtaining your exit goals. But how do you get to choose the right broker? Don’t panic because we have got you covered and in this article we are going to give some tips that you should apply when choosing a business exit broker. To start with, don’t try to find an exit broker on google, you might end up regretting after making huge losses. Follow the following tips and you can be sure of getting the right broker.
Look for attributes of a superstar
You just don’t hire a broker without looking for his or her attributes. A good broker that is not going to bring losses should be characterized by the following features.
Specialized experience
Experience is not just experience. When it comes to selling your business. A broker might have been in the game for more than 20 years and still not be the right choice for you. You need to go for a broker who is experienced in your line of your business. For example if you deal with electronics and you choose a broker who has been dealing with real estate for all his life, you might end up making losses no matter how talented he is. Having experience in your industry is vital.
The broker should also have some experience selling businesses and companies in your geographical market as well as within your price range. If the broker does not have this knowledge, it is very possible that his pricing and marketing efforts might fall short of your sales goals.
A verified track record
The broker you are about to hire should be able to provide you with some reference of customers he or she have served before and they were satisfied with his efforts. If he is not willing to share this kind of information, it might be a red flag that he is not as good as he claims to be.
But when the broker gladly provides you with a list of customers who were more than satisfied to work with him it is a step towards the right direction. Follow up a few clients who were served and confirm the claims that he is a superstar. If the ones who you contact seem to agree that he is a star, then ask about his weaknesses and see if his qualities are enough to help you meet your objectives.
Connections and Networks
If a broker claims that he will be able to take your business from listing to closing alone without needing any help from anyone that is a bomb waiting to explode to your business. Excellent brokers usually have established connections with able lawyers, accountants as well as other local professionals.
Even if you are going to use your own lawyer, it is still important to confirm that the broker has good relationships with lawyers and other professionals in your locality. This will help you understand if the lawyer has been able to gain respect from them and if he has, then most certainly he is as good as he says.
Truthfulness and Trust
The most common barrier when it comes to selling your business is the pricing. Not many brokers are honest about the real worth of the business. Most of the brokers usually tell the clients what they want to hear. This can result to dragging during the sale of the business.
But a broker who is good and knows what he is doing will tell you up front the value of your business and other sensitive details of your business even though that’s not you might be wanting to hear. If the broker is that truthful and he has all the above qualities, there is a very high chance that he is going to make you profits.
Finding a Broker You can Trust
Now that you are equipped with the traits that you should look for, it is important to understand where to start your search.
Local Referrals
There is no better way of finding an excellent broker than from the local referrals. Do some research and find out whom is doing business listing in your area and then verify his or her qualifications discreetly using some of your industry contacts. Get all the information you need about him or her before considering to hire.
Legal and Financial Advice
There is a very high chance that your lawyer or accountant knows one or two brokers that are very good at their jobs. Keep them in the loop and ask them to help you identify the best broker for the job.
Online Directories
Many online directories are not very reliable but since you already know how to identify a good broker when you see one, you can look for some suggestions from online and assess a few of them before hiring one.
Chambers of Commerce
Most of the chamber of commerce and economic development offices usually possess up to date information about most of the local professional brokers included and they may be able to help you find an excellent broker. Just to protect your confidentiality, frame your questions in a general manner.
In essence, a cryptocurrency is nothing but a transaction system, a means of exchange. You can argue (as you can with all currencies) that it is also a store of value, but the only reason to store value is the intent to exchange it for something else at a later date.
Every transaction system has a settlement system. For all digital currencies, the settlement cannot be physical. The main problem with the previous versions of digital currencies has always been that digital things can be copied. Cryptocurrencies solved this with distributed ledger and the mining process.
The Mining Process is the Settlement System
In a Proof of Work cryptocurrency, transactions are facilitated through the mining process. So, in the case of proof of work cryptos, such as Bitcoin and Dash, there has to be a mining process. For there to be a mining process, the mining has to be profitable over the long term.
Think of it this way: If I can buy a Bitcoin for less than the cost of mining a Bitcoin, why would I mine Bitcoin? But if the miners would stop mining Bitcoin and rather buy Bitcoin, there would be no Bitcoin.
But That’s not how it Works…
The Proof of Work system is beautiful in that way because it adapts over time. If the price of Cryptocurrency falls below the cost of mining, fewer people will mine, which means that the total Hashrate will drop. When the Hashrate drops, the difficulty rate drops, which means that the likelihood of winning the block reward goes up.
This mechanism means that over the long run, a functioning cryptocurrency should provide proper incentives to the miners, that is mining yields.
The Dash Example
Dash is a Proof of Work cryptocurrency. The Dash development community has been very focused on payments and on building applications for Dash to become an alternative option to payments. Although Dash seems to be gaining traction on many levels, the price of the currency has fallen drastically over the last 6 months.
For Dash miners, this means that mining Dash has become unprofitable. In April 2019, one could buy a Dash mining contract from Genesis Mining that would have a current yield (current daily mining output/cost of a day of mining) of close to 100%.
Currently, you can buy a 12 month Dash mining contract that will cost you $0.27 a day per 30,000 mh/s. The output, however, based on the current Dash to USD exchange rate will be about $0.19.
So as a potential Dash investor, what does this mean? One of two things needs to happen. Either Dash miners need to leave the mining pool to make mining more profitable or the value of Dash needs to go up and above the cost of mining.
In the world of startups and new ventures, the central theme seems to gravitate towards growth and scaling.
When it comes to growth and scaling, learning how to manage an organization that is constantly getting bigger becomes the biggest challenge.
However, when you look at the oldest companies in the world, these are all small operations in industries that have hardly changed much throughout the lifetime of those companies.
Build to Last
Two of the oldest companies in the world are a:
Japanese Ryokan
German Brewery
When founders start new companies, most of the time their vision is to disrupt an industry.
But what if the objective would be to create something that was built to last? If you want to build an impenetrable fortress, you don’t want it to be ever-expanding, would you?
So, here’s a question: What if you were asked to build a company and there would only be one constraint: The total size of the organization would not be allowed to exceed 8 people.
In the world of startups and new ventures, the central theme seems to gravitate towards growth and scaling.
When it comes to growth and scaling, learning how to manage an organization that is constantly getting bigger becomes the biggest challenge.
However, when you look at the oldest companies in the world, these are all small operations in industries that have hardly changed much throughout the lifetime of those companies.
Build to Last
Two of the oldest companies in the world are a:
Japanese Ryokan
German Brewery
When founders start new companies, most of the time their vision is to disrupt an industry.
But what if the objective would be to create something that was built to last? If you want to build an impenetrable fortress, you don’t want it to be ever-expanding, would you?
So, here’s a question: What if you were asked to build a company and there would only be one constraint: The total size of the organization would not be allowed to exceed 8 people.
A growth hacker is a person that is great at identifying and executing tactics that will optimize a sales funnel. They can:
Find opportunities that drive traffic to their product
Generate leads by incentivising their customer to share personal information or show buying intent.
Convert leads to sales
A growth hacker is very tactical and will do wonders in a startup.
A Growth Samurai is a person that can grow an operation beyond the startup phase. A Growth Samurai can perform the tactical functions of a growth hacker but has the adeptness to go beyond the startup phase and manage a growing enterprise.
Many startup founders are very good at startups but lack the skills to transition into a strategic management role once the company outgrows them. A Growth Samurai has the strategic proficiency to manage a growing enterprise.
A Growth Samurai can:
Position an organization within a competitive landscape
Create processes for growth (as opposed to executing on growth hacking tactics)
Create a culture within an organization that incentivizes sustainable growth
Make difficult organizational decisions
All Growth Samurais are growth hackers but not all growth hackers are Growth Samurais.
To a Growth Samurai, growth is a meaningless term unless is it preceded by an adjective. A Growth Samurai is looking for:
Organic Growth
Sustainable Growth
Profitable Growth
Organic Growth
Organic growth is the strongest indicator that you are doing something right. If traffic numbers or sales are growing disproportionally faster than your sales efforts it means that your sales efforts are getting more efficient. This can mean that you are getting positive word-of-mouth, that your marketing content is getting social engagement or being ranked on search engines or that you are retaining your customers.
Sustainable Growth
Growing sustainable means that you are growing your business without having to finance it externally. Almost all startups require funding in the early stages of the lifecycle but eventually, they will need to become sustainable and able to grow using internal resources.
Profitable Growth
The ultimate goal of any business is to create wealth. A company won’t create wealth unless it captures value. Many companies manage to create a lot of value for their customers but fail to capture the value and turn profits.
A Growth Samurai understands that growth is meaningless unless it creates value for customers and owners alike.
Although the history of the Mt. Gox Bitcoin Exchange is short, it is nothing short of amazing. Mt. Gox is a historic name in the world of cryptocurrencies, as it was one of the first Bitcoin exchanges to take off.
At the peak of its height, Mt. Gox’s customer base represented about 80% of the global trading volume. The rise of Mt. Gox, came to an abrupt end in 2014 when it was discovered that the exchange had become the victim of a large scale hack. Being unable to locate over 850,000 bitcoins that the exchange had in its possession, Mt. Gox was forced to close trading and to subsequently file for bankruptcy.
Who founded Mt. Gox?
Jed McCaleb founded the Mt. Gox and in 2007, he registered the Mtgox.com web domain with the aim of turning it into a trading site for the famous Magic: The Gathering game cards. He then turned the domain to a bitcoin exchange site.
After sometimes McCaleb realized he was getting more than he bargained for and he sold the site to Mark Karpeles who is a programmer, foodie, and bitcoin enthusiast and he usually calls himself Magicaltux in numerous online forums. Karpeles then rewrote the back-end software of the site and eventually turned the site into the most popular bitcoin exchange in the world.
Karpeles was born in France and he spent some time in Israel before settling down in Japan. He got married in Japan and in 2011, he acquired the Mt. Gox exchange from an American entrepreneur known as Jed McCaleb.
When did Mt Gox open?
Mt Gox was among the first Bitcoin exchange on the web but it was not related to cryptocurrency when it was developed. The mtgox.com domain was bought by programmer Jed McCaleb in 2007 for an online trading platform for virtual cards that are used in the game Magic: The Gathering.
In 2010, McCaleb then saw the opportunity to build a place where people can exchange their fiat currency to and from Bitcoin. This was how mtgox.com was launched as a Bitcoin exchange on July 18, 2010. McCaleb then sold the platform to French-born developer Mark Karpeles after a year.
How did Mt Gox get hacked
Mt Gox was first hacked in 2011 and during the first of the two hacks, the attackers were able to infiltrate into the computer that belongs to an auditor of Mt. Gox. This gave them the chance to change the Bitcoin pricing to a single cent. Afterwards, they then obtained the private keys of Mt. Gox clients which had their precious crypto assets kept in hot wallets which are internet-connected.
The hackers then went on and create selling orders on the accounts and then bought the Bitcoins at this artificially reduced price and they were able to buy 2000 BTC with this way. This hack was estimated to be about $30.000 theft in Bitcoin and this was then dwarfed by the hack that occurred in February 2014.
The second Mt Gox hack was infamously known as the first major cryptocurrency exchange hack when it happened. The hacked value was an enormous $460 million worth of Bitcoin at the time. Although this may not be the largest hack in terms of the value in fiat money, it is considered to be the largest amount of Bitcoin that was ever stolen.
More than 850,000 Bitcoins were stolen which includes 750,000 Bitcoins that were owned by its customers. At its peak price, the value of the bitcoin stolen is $17 billion while at the current price this will be about $3 billion.
Although Mt Gox stopped all Bitcoin withdrawals on February 2014, the exchange has already been emptied of its Bitcoins long ago. It was reported that Bitcoins were stolen bit by bit since the beginning of 2011. The group that did this investigation then indicated that by May 2013, the firm no longer held its Bitcoins. Mt Gox then filed for bankruptcy not long after the hack because they were no longer able to continue with the operations.
Will Mt Gox be rehabilitated?
According to TechCrunch, In February of 2019, there is a movement referred to as GoxRising which is working to have an alternative to bankruptcy for Mt Gox. The main idea behind GoxRising is simple and it is that instead of using the bankruptcy courts to give the assets of Mt Gox to the owners of the company, it is making use of civil rehabilitation law so as to return most of the asset to the creditors of the company.
It appears that GoxRising will be successful in these efforts because Tokyo lawyer, Nobuaki Kobayashi has been appointed by the Japanese courts to work on the civil rehabilitation process. This is going to be a piece of good news to those that have lost their assets in the Mt Gox failure because they will likely gain from this deal due to the civil rehabilitation law.
Another potential way this court may end is that the embattled CEO of Mt Gox, Mark Karpeles will likely end up with lots of Mt Gox assets if the bankruptcy process is allowed to move forward. This is because he owned about 80% of the company and when it went bankrupt, it will place him in a great position to get this huge payout under the Japanese bankruptcy law. If this happens, Karpeles knows that his life is in danger as he would receive lots of civil suits from Mt Gox creditors that has lost everything to him. More insults will be added because Bitcoin prices are much higher today than it was in 2014.
With the civil rehabilitation process, it looks like a winning idea to everyone that is involved in this deal and it looks like a way forward. The civil rehabilitation process is expected to take 3-5 years based on the reports from the media. Although civil rehabilitation may be considered to be a time-consuming process, it is still a lot better than bankruptcy.
How to Value Stuff 