Documentation > Glossary V

Glossary V

The financial world is full of jargon - i.e. strange words no-one understands. Here we try to explain some of the many technical terms.

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V

Valuing Intangible Assets

A black art.

To make their balance sheets seem ever more rosy, companies like to attach a monetary value to intangible assets. The problem with intangible assets, is that they are, ... intangible. Exactly what a trademark, brand-name, 'innovation', 'ideas', 'people' (- our greatest asset!) or a good reputation is worth, is anyone's guess. Of particular concern is the case where a company's abilities are tied up mostly in the skills and knowledge of its employees - clearly the worth of the company is related to these assets, but when ultimately these assets can leave at months notice, what is their true value??

Be very skeptical about valuations attached to intangibles.

Value and Growth Investing

These are two common words which you will hear when there is any discussion of investment strategies -

  • Value investors try to find companies which are 'undervalued', i.e. that have good fundamentals, but a share price which does not reflect this. Believing that in the long term the good fundamentals will eventually be recognized by the market, such companies are seen as good buys, unless of course the strong underlying fundamentals are nothing more than fanciful fictions.
  • Growth investors look for growth and continuing rapid growth, i.e. increasing sales, increasing share price, increasing market share.

You will see many dull discussions on the newsgroups and message boards of the popular investing Web sites on the relative merits of these approaches. It should be noted that both strategies depend crucially on having access to a set of numbers which can be believed.

Vested Interests, by Category

The general public can be a troublesome lot - it would be much better if they just did what they were told; the experts know what is best for us in the long term, so perhaps we should just follow their advice -

  • Brokers - need to keep people buying stocks. Expect to hear a lot of talk about how 'undervalued' equities are (- by what measure?!) Being a stockbroker is a nice, cushy job - if people stop buying stocks, then redundancy beckons.
  • Analysts - keep buying the stock we recommend; we don't want to lose our jobs either.
  • Fund Managers - give your pension money to us, so we can buy stocks for you. Keep pouring ever more cash into them, even though the payoffs are lousy.
  • Independent Advisors - buy whatever we are selling. Trust us. It is all too complicated and difficult for you to understand.
  • Politicians, Economists, Bankers - do what you are told and shut up. Buy an ISA. Buy stock and hold it forever, that way stock markets will not be so volatile, and our financial planning may have some chance of succeeding. And vote for us as well.
  • Pundits - listen to us while we talk up the market. Make our wishful thinking a reality. Sign up for my investment newsletter; come to my seminar - in your area soon!

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