Didier Le Menestrel

About value

“Today people know the price of everything and the value of nothing!” This quotation from Nicolas Boileau (1) clearly sheds light on recent stockmarket rallies throughout the world.  Undermining the blackest forecasts of just a few weeks ago, company stock prices have picked up, despite the fact that nothing has really changed concerning restrictions in their economies, with a bit of restored confidence enough to prompt the upswing.

As investment gurus (from John Templeton to Philip Fisher) have hammered home, this again testifies to the fact that on the stockmarkets, value rarely goes hand in hand with price!

However, these two notions (value and price) are based on the same measurement and assessment benchmarks for a quantity or an asset. Especially on financial markets where shareholders are looking for a price for assets that they readily qualify as having value.

Value has a wider symbolic dimension than price: what is valuable for a given person is not for another, irrespective of the price that may go with it. The “value judgement” or the “value scale” exceeds by far a simple “cash value” which may go no further than the price. This is a useful semantic reflection that has long fed debates by economists questioning at length the objective (Marx, Ricardo) or subjective nature (Hayek and the Austrian school) of value.

Closer to home, modern accounting rules (IFRS) and regulations (Basel III, Solvency II (2)) have no time for debate and as a means of assessing value, encourage investors to only take into account the price-tag given by the markets. Nonetheless, the markets, as we have just experienced, have little consideration for the “value of things”.

Is it really reasonable to entrust price specialists the job of assessing value?

For example, insurance groups that take on very long term risk are clearly the first concerned by this type of reflection. Imagine the bad surprises for French savers if their euro-denominated life-insurance contracts were one day to be valued depending on market fluctuations? This is pretty much what happened in the banking sector last year as it became the victim of investor mistrust for European state bonds. Banks were suddenly unable to meet their obligations in terms of both equity and regulatory liquidity levels while continuing to finance the economy. Clearly a worrying factor in our view.

More generally, the dictatorship of market prices is reaching its limits for those who would like to add value to their environment by spending the time and means necessary for it to appreciate in value.

This reflection is particularly relevant for savings management in the wider sense: what strategy should be adopted over the long term in a world that is constantly highlighting daily prices? The series of financial crises shaking western economies have at least had the merit of giving all those who have been questioning the drift in the “financialization” of our economies for some years already more examples and food for thought. Let’s hope that sensible solutions should soon help highlight the choices of those who, like us, believe that value creation comes over time.

Didier Le Menestrel

1Poet, writer and French critic from the 18th century
2
Regulatory standards for banks and insurance groups