The next step is to evaluate the potential of each candidate on the list. Building a potential partner matrix for a small computer firm, like the one shown previously, can help organizations visualize how each prospect might satisfy their needs. In the example, the firm’s needs are to develop new products, expand its market, and secure new distribution outlets in order to stay competitive. Based on how each prospect might meet the listed strategic needs, the firm would probably want to take a closer look at PC Products and Nokomis as partnering candidates. After identifying these two candidates, it would then need to determine what it can offer to them.
If you’re going to sell your potential partner on the idea of partnering,you need to know what you have to offer. As with any sales transaction, if there’s no need, there’s no sale. People do buy things they don’t need, of course. But what happens after the sale? They return the product. They discount the transaction and never repeat it. The sales relationship is short-lived. If you want a good, strong partnership, it will pay you to bring your potential partners up to speed on the partnering process you are using to partner. You can do this by helping your potential partners identify their needs as well.
The importance of asset allocation, or deciding what percentage of a portfolio to devote to various asset classes, cannot be overstated. Especially equity and corporate bond investors spend enormous efforts on picking individual investments, while they spend relatively little time on deciding what types of stocks or bonds to buy into their funds. Numerous empirical studies have shown that a large part of money managers’ performance can be explained by asset allocation, not by their selection of individual stocks. Therefore it should be just the opposite. Investors should spend most of their time on overall asset selection and ignore individual investments for the most part. When a stock performs well, invariably stocks from the same asset classes follow in parallel. The primary goal should be to pick the right asset classes in order to outperform. Asset allocation is not easy and requires completely different skills than the selection of individual investments, but it is less detailed, and it rewards skilled investors generously.
Histories of indices will be used by investors and their consultants to formulate strategic allocation policies. Asset allocators and academics also have an interest in long data histories when building allocation models. The asset–liability modeling exercises that many pension funds and insurance companies now undertake on a regular basis to review strategic benchmarks, all tend to use historical volatilities and covariances that are derived directly from index histories. There may be some advantage to investors in using the same index for the ongoing fund management benchmark as that used in the prior modeling exercise.
Capitalization rate? I know you’re thinking this is starting to sound complicated; definitely third-year college accounting. Well before you close the book, allow me to explain. First, it sounds way more complicated than it is. In numerical terms, the capitalization rate is the net operating income divided bv the purchase price:
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