The Standard is the Standard
Ask anyone and they will tell you that I am a big believer in templates.
They’re efficient, scalable, repeatable, and standard – all good things. Which is also why one of the bigger red flags out there is when people don’t use them.
I saw returns reporting recently from a smaller manager who had made four investments – all level three assets. And in valuing each of the four, they used a different methodology.
Now, it’s their prerogative to do so. One was DCF. Another comparable transactions. Then public comps. And finally mark to the majority owner’s mark. And their valuation “policy” gave them the latitude to do so in "appropriate" circumstances.
But it raises the question, if everything is bespoke, then what is the standard? And are you trying to be accurate or are you trying to be favorable?
Last time I mentioned fitness personalities, it was Peloton’s sassy and spicy Jess King. But my new go-to is Tonal’s Joe Rodonis who, in between talking about all of the food he is going to eat after the workout, reminds you over and over that “the standard is the standard.”
Yes, the standard is the standard.
See, templates don’t just create efficiency, they create constraints. And sometimes the point is constraints. If something looks good one way but not another, you should look at both but focus and report on the latter. While reality is probably somewhere in between, if you’re an operator and not a performer, you want eyes on the worst case, not the best.
In other words, if you have a standard, a template, or a constraint, and someone opts out, that’s interesting. It’s not random. If things were good, the standard, template, and constraint would all apply.
Sure, sometimes things are unexpectedly better than expected. But usually when something’s strange, it’s not.
– Tim
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