Why value value?

Why value value?
one year ago

I'd started a short LinkedIn post a while back about, the value of value. It stem from a belief that value is created from accumulated capitals. This idea was made famous by Alfred Marshall in his book about economic theory way back in the late 1800. Value is created when the return of capital exceeded the cost of capital, well in this case it's what I term as capital gains.

This notion of value that drive most of our businesses today, most managers tend to forgo long term investment in innovation and prosperity for the short term gain, ESP for next quarter is the yard stick. Then the other things about when everything of value is about capital gains, the notion of increasing share price hence the market value is far outweigh other aspects. This view is not only distorted but also harmful to the businesses. Share price is a real indicator or the actual values created, there are so much unknows, things could be manipulated, managers squezing marketing, innovation and brand building, harmful discount, market order. Accountant write off opex as some sort of capex that could provide future income. Market cannot access the information they don't have , these are the reason why share price will not be a complete picture of what the business really worth.

But since then, some things do change, If we were truly care about values, then short-termism is kind of the opposite of what we do. The goal of a businesses is to create value for it's shareholders, stakeholders. society and the country, now and the future. Creating values in the future requires more that just high share price, investment in innovations, knowledge might not yield a quick return. But studies show that business that focusing more on their future values instead of short term gain. actually won out in a 14 year average tracked across all major indices.

Then there are values which are created from the investment in social, environmental and governance aspect that might not yield any capital gains, but creates a more meaningful and conducive environment for future values to be created.

Value creation cannot be limited to simply maximizing today's share price, it should be about collective value for the business to it's shareholders, now and in the future.