A Reminder To Channel The Wisdom Of Crowds

This is something I often do in conference presentations. It’s a winner when you have a large audience.

I was reminded of it when catching the engaging Robert Coles of Reuters discuss the recent Royal Mail privatisation.

For those to whom this means nothing, shares in the UK’s postal delivery service were offered for sale at £3.30 a share. This valued the operation at £3.3bn. Just a fortnight in and the shares are around a fiver. Lefty observers cry that this undervalued the business and robbed the taxpayer.

Robert Coles is a rare voice of reality and sanity on the matter. He asserts the current stock price over values the company.

As the twitterverse reported his comments;

When I see these kinds of valuations I wonder whether I’ve been asleep for the past 15 years and woken up in a dot com bubble.

These remarks were made after a Skynews investigation revealed the incredible values put on the outfit by those banks asked to tender for the issue. Here’s the highest three upper valuations;

£9.95bn JP Morgan
£7.3bn Citi
£6.9bn Deutsche Bank

Damning evidence for those that view banks as neither moral nor intelligent.

None were among the seven chosen to run the job.

After commenting that this could be seen in a similar light to Estate Agents, telling a prospective seller that their house is worth more than it really is, just to secure the deal, Mr Cole added;

JP Morgan is not a tinpot organisation… but in any sober analysis, I think that Royal Mail at £5 is… overvalued.

Watching his interview in the flesh, you note that his language is more colourful than that.

The point I took from this story, was the average valuation. Note that 21 firms were asked to bid and provide their own calculation.

It seems that the average value given was £3.6bn.

The Government commented;

“The proposals included indicative valuations of the company based, in many instances, solely on information already in the public domain.  Banks made their own assumptions of Royal Mail’s future performance. The range was wide with the median around £3.6bn taking into account [an] IPO [initial public offering] discount.”

In other words, they consider (regardless of how far out the guess from actual appears to be in pure percentage terms) that this average was about right.

So, if you take that stretch (that a poll of 21 provides an average estimate that’s close enough to what later transpires) that’s a cue for any group of similar size that you can quickly quiz on a future outcome.

As for mechanics, I make sure they write down their choice in private and then I collate during a break to broadcast for discussion after.

It gets them thinking and allows a useful revisit some time ahead.

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