Value for Dummeze

There’s so much talk around here about value that I’ve been accused of being obsessed by it.  I plead no contest.

Bang buck CROPParticularly in these stressed economic times in which we seem mired for the foreseeable future, the quest for value is a search that most of us pursue, in both our personal and professional lives, almost continually.

But what is value?  Most of us realize it’s not the same as cost or price.  It’s what you get for that cost — the ‘bang for the buck’.  Economists would say it’s the benefit/cost ratio.

My two bucks not to Chuck

I like wine.  One of my hobbies is discovering really good wines that sell for less than $10 — but taste like they’re worth several times that.  To me, it wouldn’t be nearly as much fun discovering a great bottle for $100 — too easy — besides which my Scottish heritage would never stand for it.

I’ll never forget our trip to Languedoc-Roussillon in the south of France, where we got delicious local wines in the supermarket — for $2 a bottle. That cured me forever of wine price snobbery — but made me forever a wine value snob.

“Value” implies getting more (of something) for a given amount of money.  A value investor is one who likes to buy low, then sell high.  A value stock is one that seems underpriced relative to its fundamentals and earnings potential.

Thinking like an MBA

Value creation is the fundamental keystone of our competitive economy — and one of the genuine Mysteries of the Universe.  For me one of the best things about business school was the opportunity to think and talk about value for two intense years — both in an abstract theoretical sense, and in an applied sense as it relates to producing value in live enterprise situations.

As an MBA, you learn not only not to take value for granted, but even to have a certain reverence for it — that value is transient, not to be treated carelessly — it can come and go.  Much like other living organisms, products, business models, companies, even whole industries have life cycles — they are born, they grow, they thrive, they ebb, they die.  The value life-cycle is an entirely natural process — even predictable, once you understand it.

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