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Jack Falvey's Investor Education Briefs: Value is in the eye of the beholder

By JACK FALVEY
January 01. 2018 9:06PM




TURN THE pages of a fashion magazine and you will find things at prices far above their utility value. Those wishing to be identified with high-end branded merchandise will often pay inordinate sums for that privilege.

The same is true of investments. The cache of owning a stock on its first day of public issue often has greater image value than appreciation worth.

A high-risk initial bounce may result if the IPO comes in below market expectations, or it may not. Image is a commodity that is priced at market. You must pay for image. That raises the question of return on image investment.

Generic is better if it produces results. The no-name unknown is ideal because you pay only for what you get and not for what others perceive. “Off the beaten path” works, but “way out there” doesn’t.

Utility is the value you are looking for. Your investment decisions can be plain vanilla. The flavor of the month always comes at a premium.

The mutual fund was created for just this purpose. It has no flavor at all ideally. It mixes everything together to create its own mini-brand. It has a group track record.

Fortunately, there are enough funds available so you don’t have to pay an image premium (or a large management fee), so check that detail. Most people further diversify by holding a group of different funds. All this is done to avoid investing in costly image.

Bland with reasonable performance is not the thing of legend. It is often where the smart money goes. It goes where others are not terribly interested in going.

Go there. It is a good place to be. This is a case where having a different view of things can be good.

Jack Falvey is a frequent contributor to the Union Leader, Barron’s and The Wall Street Journal. He can be contacted at Jack@Falvey.org.


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