A Valuable Analogy
(Editor's Note: This is an excerpt from Steve Fierro's new book, The Four Quarters of Horse Investing, now available in the NetCapper Store.)
I will use a non-horse racing industry to create comparisons to the four strategies [contender selection, attaching value, performance while investing, and record keeping]. This will help reinforce the original claim that a business is a business is a business. Let�s begin.
If I were to become a retail clothing store owner tomorrow, there are a few strategies that would be common to the industry. These common strategies would be items proven to be necessary to run a successful retail clothing store.... The analogy I am going to present will seem ridiculous, but please understand it takes place at racetracks across America daily.
So far the store owner has not had to make any financial decisions. Since this is a retail store and the owner is not manufacturing the clothes, the clothes must be purchased from a wholesaler or middleman.
Picture this: The store owner is full of enthusiasm. The store owner knows the inventory selected (contenders selected) has the potential to sell (win). The store owner now must place the purchase order for the clothes that have been selected (make the wager), so he gets ready to place the order with the wholesaler, who in this case is me.
"I thought you had selected three items for your store," says the wholesaler.
"I did," replies the store owner.
"Then why are you insisting on just this one if you think all three have the potential to sell?"
"I really like this one," says the store owner.
"By the way," remarks the wholesaler, "have you noticed the price of this garment?"
"It doesn�t matter, this is the one I have chosen with which to make my profit."
The wholesaler once again chimes in, "Let�s look at the price compared to the others you have chosen (toteboard odds). What price do you need to show a profit with this type of garment in the long run?"
"I don�t know," concedes the store owner.
The wholesaler is now really curious. He asks, "If you don�t know the price that creates profit, then how do you know you can make a profit running your store? What about the others you selected? They certainly have the potential to sell and you might even make more money."
With arms crossed and a scowling expression, the store owner replies, "This is the one I like and it is the one I am buying!"
The final comment from the wholesaler is, "I don�t understand how you can run your business not knowing what the clothes are really worth to you as the owner of your own store. You don�t even know the price you need to make a profit."
"Just give me the one I like. A sale is a sale (a winner is a winner)," snaps the store owner.
Yes folks, this happens at every racetrack, every race, every day. I told you the story would be ridiculous. You or I would never try to run a clothing store without knowing at what price we needed to sell our inventory in order to make a profit. We also would not have a "one item" store.
So why do people who regularly play the races refuse to attach value to their contender selection process? Beats me, I�m only the wholesaler.NC
Copyright �2002 Steve Fierro. All rights reserved.