This week's ATW is all about the difference between price and value. The link below has an eye-grabbing headline about Tesla Motors - a car company less than 15 years old - which just surpassed Ford Motor Company in market capitalization. For car history buffs, Ford began exactly a century before Tesla, meaning that it took Elon Musk a decade and a half to accomplish what the #2 car manufacturer in America (after GM) 7 times as long to do.
Continuing with the side-by-side comparison, Ford's Revenues were US $152 billion compared with just $7 billion for Tesla. Though the most striking difference between the two companies is the number of vehicles sold worldwide, with Ford outpacing the electric start-up by more than 6.6 million vehicles in 2016 alone.
Where am I going with this? Well, right to the point that just because someone is willing to pay an amount for something, doesn't mean it's worth it. There's a difference between price and value. The former is the rate of exchange for a given item like a $1000 pair of Jimmy Choos, while the latter is something that is worth many times its sticker price, like an Oxford English Dictionary purchased at a garage sale for 50 cents.
Bottom line? The institutional money managers we partner with were hired on your behalf precisely because core to their investment approach is knowing the difference between price and value. Their bottom-up Value approach to managing the investment funds your retirement savings are in, is predicated on buying a dollar-worth of assets as cheaply as possible. This lowers downside risk, as the companies that they hold are priced nothing like Tesla's. As always, a single picture says a 1000 words (now there's value!) and the Funny from the New Yorker sums it up best: knowing the price is one thing, the value of that is another.
Manulife Securities Investment Services Inc.