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It is a balmy night and I am having drinks and dinner at a friend’s gorgeous house with a splendid view. The conversations are flowing as easily as the drinks until a friend, who knows me for quite some time, says to me: “Vincent, I really like your blog… but you don’t write them yourself do you?” Huh? In a flash-second I do not understand him. I think my blog just got a compliment but I certainly did not.
He must not have seen me as the writer type, whatever that may be. Does he know Ernest Hemingway is one of my heroes? You see, perceptions are easily formed and very important to us. However, once formed, they are hard to change and often lead to false conclusions unless we check the facts to back them up. The way we perceive everything is crucial to forming opinions and making decisions. Creating perceptions is an art and is practiced by most of us whether in our real or digital, professional or private life.
Do you know you purchase more in supermarkets when you shop counter-clockwise? Do you know Elvis Presley was a natural blond? Do you know a frozen cow, falling out of a clear sky, sunk a Japanese fishing boat? Do you know Warren Buffett accumulated 62 of his $63 billion net worth after his 50th birthday? Do you know that many daily consumer products’ companies decrease their products’ volume rather than increase their prices? Do you know that prices are very fluid and your perception of them can be changed, but that the value stays mostly the same? Do you know none of us have a clue when it comes to price, unless we have something to compare it with?
OK, I am not going to ask if you know of Google. Google’s founders wanted to sell their company for less than a million dollars in the late 90’s. Today, Google is worth $400 billion dollars. What’s your price? No, seriously: what are you willing to pay for Google? Here starts the journey of perception formation. First, it would be very wise to conclude we have no clue without something to compare it with. Luckily, we can compare Google against other companies operating in the same industry. We can also compare Google against itself over time. The latter we do by looking at Google’s earnings over time. In the late 90’s Google was generating very little income, while in 2013 it made almost $13 billion in net profits. This is 13,000 times the price the owners tried to sell Google for initially. Wow!
So, now we can define a ratio: price divided by net profits and suddenly everybody can and has something to say about Google’s price. This process is very similar to the one we go through in supermarkets, looking at the price per weight ratio of different jars of peanut butter. You see, we tend to be ratio wise but price foolish. However, it is really the value we should be looking for and that is often the hardest to do when we are so influenced by our perceptions. Everybody can spot a bargain price, while only few can spot value.
So how do you filter out the difference?
To find out, join i-Cthru.