The K Shaped World of Practice Values

Wall Street Analysts Talk About the K Shaped Economy Incessantly.

Moody’s Analytics estimated that the top 10% of US earners accounted for roughly half of consumer spending.

Today, dental practice values nationally are following a similar K shape. Growing practices with younger doctors (under 60) are attracting multiple IDSO bidders at record values in an LPS managed process. They are the upward pointing “arm” of the K. Conversely, practices with declining collections are functionally ineligible for an IDSO partnership with a qualified bidder until they return to Year Over Year (YOY) growth. The lower pointing “leg” of the K.

Practice values are directly tied to collections’ growth rates, and practice growth today (aka consumer spending) is in part driven by the Top 10% of all earners. If the Top 10% keep spending, practices should be valuable in 2026. However, if this segment of the consumer population pulls back on their spending, practice collections and therefore practice values will be in jeopardy.

But What Would Cause the 10% to Pause or Reduce their Spending?

“The US economy is looking lopsided. A soaring stock market has boosted the balance sheets of high-earning households, which are in turn propping up consumer spending and economic growth. Lower earners, on the other hand, are pinching pennies.

Analysts say that imbalance creates a fragile, circular dynamic. A stumble in the US market could mean a slowdown in spending by higher earners, which could have ripple effects throughout the economy, including for stocks. “It’s almost like the stock market is the tail that’s wagging the dog of the economy,” explains Emily Roland, co-chief investment strategist at Manulife John Hancock Investments.”

Above excerpted from article by Sarah Hansen with Morningstar: Why a ‘K-Shaped’ US Economy Means More Risk for Stock Investors The Bottom Line for Practice Owners

Your own equity portfolios are risky at current market valuation levels. But did you know that your entire practice value may also be riding on the S&P 500? Have you unintentionally put the majority of your net worth, (your investment portfolio and your practice value), at risk of an S&P 500 decline? Sure seems like it to me, but remember, I missed the entire equity rally because I only invested in gold and silver …