Researching Value
Concept Overview
Ever wondered what the value of something in your possession may be worth? Perhaps, you have always wondered if your boss struck a once-in-a-lifetime bargain by hiring you? This time, we focus our attention on one important quality of financial success: The ability to evaluate the real value of things.
Good knowledge of what something is worth enables us to make informed decisions in our daily and professional lives. Imagine finding yourself in a negotiation room and you have a very limited idea of what the value of an asset, business, or interest is. You’ll always be at a disadvantage and likely to come out of such negotiation with feelings of regret. Likewise, as you progress in your regular career, you’re going to have to sit down with your employer and negotiate your work benefits. Is your quote going to be about the value you place on yourself or whatever is trending that comes to mind?
Perhaps, you want to sell an item in the garage and would like to know the value to place on it. Or there’s a new shining product in the market and you wonder if it’s worth the money.
Factors That Determine Value
Quality
The quality of a product is a significant factor that affects the value of something. A product made with a better quality of materials and by a more experienced and skilled craftsman will possess more value compared to a similar product with lower quality materials and craftsmanship. However, the forces of demand and supply are still responsible for determining the monetary amount.
Popularity
The popularity of a product or service doesn’t affect the real value as you would have expected. A product can be popular not because it is a good investment or has any resale value, but because people want it due to its sentimental value to them.
However, there are also numerous occasions when a trending commodity keeps getting more expensive because more people are investing in it. Some people will be lucky and smart enough to cash out at the right time while the value is still high. Others, especially those who invested in the later stages, may lose money as the popularity begins to dwindle and few people are investing.
Competition
The more competitive a market or business is, the lower the price the sellers will be willing to sell. This is mostly true if the items are of similar value. However, that’s not always the case as values can be very subjective. Consumers should be aware that products that are priced lower may be of lesser value than those with a higher price tag.
If there’s a monopoly on a product, people tend to attach more value to it. Here, the seller can very much decide to sell at whatever price they feel convenient. This scenario reinforces the belief that market prices don’t tell the true story of an item’s value.
Scarcity
This one turns market logic on its head. The least priced item on the market today may be the most priced tomorrow due to scarcity. This sudden change in price usually has nothing to do with value or quality. It can be the same product made by the same manufacturer using the same materials.
Some artworks and rare gems collectors pay incredible amounts just to own such pieces. Here, the value of such items is tied to their rarity. Most of these persons are normally not interested in selling such items in the future. Yet, their value is only going to keep increasing as it becomes more difficult to find them anywhere as the years go by.
Cost of Production
Cost of production is the single most significant determinant a manufacturer is going to base the price of a product on. However, the final buyer doesn’t only have to cover the manufacturer’s cost to produce, but also the cost to get the product to the doorstep of the consumer. Hence, it’s possible and highly common to find that a product is being sold at different prices in two different stores. This is because each retailer may incur largely different expenses getting the item from the manufacturer’s warehouse to their shelves.
Conclusion
All the above factors are good and useful indicators to use to determine what value you place on an item. Some of these factors may make more sense to you and hence, carry more weight when basing your decisions. What’s most important to anyone varies from an individual to another. Hence, value is subjective and only you can truly determine what an item’s true value to you.
Tools
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References
Online
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Books
Deep Value Investing: Finding bargain shares with BIG potential; Jeroen Bos (2018)