Let’s focus on “value” rather than “price per share”
Ok, we all love the idea of fractional share investing. The debate is over. Owning shares in the world’s greatest assets is here to stay. Whether it’s sports cards, rare books, classic cars, or dinosaur bones, delivering incredible investment opportunities once only available to multi-millionaires and billionaires is now complete. Mission accomplished.
Amazing platforms have revolutionized the space. Rally, Collectable, Otis, and dozens of others are leading the charge with amazing offerings. They’re also building thoughtful communities based on trust, service, and transparency. This is a beautiful thing and tons of fun to watch develop. My hat is off to these relatively new platforms leading the charge – changing the game – leveling the investing and collecting playing field.
And the good news is these platforms are as focused as ever to take things to the next level and build on their successes. Awesome news, and I have no doubt exciting things are on the way.
Just One Tiny Critique
There’s just one thing that irks me just a tiny bit. And most, if not all of the platforms, are guilty of this practice. I’m constantly noticing it over and over. My biggest issue is the emphasis placed on the price per share of an item rather than the “value” or total market cap of the item.
There are a few things wrong with this approach. But first of all, I completely understand why it’s happening. Here’s why I think platforms refer to an item’s price per share primarily – rather than the total value of the item.
1. Small Accounts Need to Know the Price for One Single Share
When a classic car or Mickey Mantle baseball card is presented for trading, it’s referenced as “$80.00 per share.” I’m guessing the main reason is that platforms want to be sure investors know the minimum price for one single share, enabling them to gain access to an incredible asset for only 80 bucks. I get it.
I also fully understand that some investors might only have 50 to 100 bucks to deposit into an account, and they might be slightly short of funds to even buy one share – depending on the share price. Again, I get it – not everyone has hundreds of dollars to buy multiple shares of an asset.
2. “Price Per Share” is a Familiar Investing Term
I also realize that “price per share” is a term stock market investors are familiar with, and using terms that have been used for hundreds of years in stock market investing helps translate what we are trying to do here with fractional alternative assets. It all makes perfect sense.
Here’s the Problem With That Approach
First of all, $80.00 per share says nothing about the value or price you are paying for an asset. If the only figure listed is the price per share, you need to find out how many shares are offered before reaching any conclusions on valuation.
If fractional platforms want to grow communities around investing in assets, they could help the process by focusing on the value or price for the actual asset rather than the price for one share. Let’s just cut to the chase, and call the item by the value. I’m going to assume one share will be in range (around a hundred bucks or less) to make investment possible.
We Are All Adults Here (sort of)
If you’ve ever watched, or taught kids about investing in the stock market, one of their first instincts is to look for companies that are “cheap.” They begin to search for stocks trading at just $2 or $3 per share. In their minds, a stock that is 2 bucks per share is a better deal than a stock that costs $90 per share. We all know the issue with this thinking.
Most beginner stock market investors almost immediately figure out that the price per share is just a function of how many shares exist and the overall value of the business. But I think it’s important not to take this understanding of “market cap” valuations for granted.
We are all adults here (for the most part), let’s simply refer to the asset by total value, rather than the sales-pitchy, “this car could be yours for just 15 bucks a share!” These slogans just don’t mean anything to an investor with more than one week of experience in financial markets.
Let’s Not Copy Wall Street, Verbatim
There’s a psychological aspect to the “price per share” mindset. Naturally, an investment feels better when the share price lower rather than higher. This phenomenon has played out in the stock market for decades as companies announce “stock splits.” Price per share is cut in half and the stock price rises in anticipation of the planned price per share splitting in two!
Some of the biggest stock gains are seen simply by the announcement of the stock split at a future date. This reveals investors are preparing for other investors to prefer a share price that is half the current price. Of course, we all know this is silliness, but it happens again and again, nonetheless. Let’s use the positive traits from Wall Street and leave the goofiness alone.
Let’s Talk About Something Important (Que the Glengarry Movie Clip)
“Price is what you pay, value is what you get.” You can all guess who muttered this famous quote under his breath a billion years ago as he was reading a prospectus for some obscure steam engine manufacturing company. That’s right, Warren Edward Buffett. I have no idea what point the old man was trying to make with this quote, probably something about dividends. Nonetheless, I think about the quote a lot.
In today’s YOLO investing craziness, double-digit returns are looked down on as boring. An investment is not attractive unless it has the potential to “10x” or “100x.” This could be problematic because you lose focus on the actual value of the underlying asset.
If an industry is to survive in the long term, it will require long-term thinking. Fractional share alternative asset investing can survive for the long term as long as we don’t lose our minds. Hoping and praying a first edition copy of Huck Finn is going “To The Moon” is a sure way to toss valuation out the window. Let’s not do this. Let us please focus on value. There will be big winners, but it’s ok if that is the exception rather than the rule.
Thinking About Valuations
B.O.C.T.A.O.E. – “But Of Course There Are Obvious Exceptions.” Naval Ravikant shared a story once of a friend who would reply to every critical tweet during an exchange with “BOCTAOE.” There are always obvious exceptions to perfectly laid ground rules, especially in the investing world.
While talking about overpaying for assets, the devil’s advocate will go directly to Amazon stock, or Apple, or Tesla, or Monster Energy Drinks, where, over the last twenty years, it always made sense to overpay for the company, regardless of what valuation metric you were looking at. And the list goes on and on. Yes, sometimes the right answer is buying extremely expensive or what look to be overvalued assets because their growth is off the charts. BOCTAOE.
Focus on Value
In the alternative investment fractional ownership space, part of the fun is attempting to determine the value for these unique, exciting, extremely rare, and desirable assets. Sure, you might be able to catch lightning in a bottle, like the Pokemon offering that shoots up by 900%. That can be thrilling, but it’s the exception. It would do the community well to stay realistic about future returns.
One way this is possible is by focusing on the value of the item, rather than getting tossed off track and falling into the “price per share” weeds. I realize finding the value or market cap is a quick math problem with price per share and shares outstanding, but why not cut to the chase?
Having a financially savvy and knowledgeable investing community is the best road to long-term growth. It will surely benefit all investors involved in fractional shares at the initial offering and during daily trading. It would be worth reminding ourselves that hype, overly clever marketing, and unrealistic valuations will only repel participants who might otherwise enjoy this market. By focusing on the value of the asset rather than the price per share, we can grow the community responsibly for the long term.