Truth is bold by nature and lie, arrogant. - Om Swami
I wonder if anyone has ever thought of Value investing in a philosophical sense. My weekend contemplation is on the importance of Values in companies that fetch premium valuations. We are too focused on what we are getting for the price we are paying to buy a stock or a stake in a company. In other words, there is enough literature available on Value investing in its economic sense
Taking a view on a stock, from Value investing point of view, perhaps, will be incomplete if we ignore what was the core reason for ‘life’ or ‘essence’ in a business.
Many growth investors have already thrown the Cigar Butt or Asset value concepts out of reckoning and married pure growth concepts in their valuation matrices. Much debate is around durability, longevity, consistency, predictability of a business growth. These concepts are very subjective in nature and are a matter of conjecture. This is the reason why buyers and sellers of a same stock exist at any given point of time, assuming both buyers and sellers had long term horizon, same risk profile and there was no liquidity crunch.
This subjectivity alone is the reason for ‘Alpha’ generated by some successful investors in equity markets world over. I am not denying the role of luck or market timing. But the joy one receives by a careful and diligent preparation is more satisfying than success by sheer luck. The former experience gives rise to a ‘Bold’ personality and the latter an ‘arrogant’ investor.
Coming back on the main topic, I used two terms above ‘life’ and ‘essence’ of a business or an organisation. Let us look at what fosters and nurtures growth in a company. Is it technology, a great product, speed to market, popular managers, employees, preferential access to government or is it Research and development?
Perhaps all of the above are excellent ingredients of a great stock to own optically. In a short run, you will do well if you just identify some ideas that score high on some of the above attributes in comparison to its competitors. However, to get a sustained growth environment within an organisation, a great value system is vital. Very often it is the vision of a man who leads the value chain. It is the single biggest challenge in succession planning that this legacy of values is protected and passed on generation after generation. It is a role that everyone inside the organisation has to perform to protect the values. One can not rely just on HR bosses or some cultural captains that present a value shield.
If you notice, I have not used terms like ‘creating growth’ in my post so far. It is a short sighted and narrow way of looking at things. Even nature on our planet and in universe is only providing a ‘nurturing environment’, nobody is creating. We are not growing plants or trees, they are just growing. We are only helping, nurturing it. When we think that it is we who are creating it, it only boosts our ego. We will be carrying a burden on us.
Creation is an ‘in to out’ process and not vice versa. We can only provide an environment of free thinking, moral ownership, a sense of belonging inside the organisation. It alone instils a huge and vital mental energy for all stakeholders to think like one. In the words of my Spiritual Master,”… Group intelligence is more transformational than individual heroism in the longer run”.
A value based organisation is judged not just by how they wish to treat their employees but its attitude towards its business associates, partners, suppliers, shareholders, government and community. A company that is respectful of all its stakeholders, will invariably get preferential treatment from them. I am not for a moment suggesting that ‘Money’ and ‘Profit’ are to be ignored but an organisation that has its eyes only on Profit and fame, will have no eyes on its path.
You will notice that such companies will be very consistent in its communication with investors, transparent in its proceedings, values its stakeholders, treats employees fairly, gives back to community and gives credit to others for their success. In a nutshell, will have good reputation and high corporate governance standards.
Is it then a surprise that those stocks will trade at a huge premium to its peers? Such companies will always be preferred in tough times by investors. Such companies will find good talent attracted to them like a bee to a real flower. During times of consolidation, many opportunities for merger or takeover will be presented to them. For, a virtuous stream of Ganges will continue to remain pure. Despite taking many small streams of water, full of impurities, along with it.
How many of us are looking at real ‘Value’ in a ‘Value investing’?
Love and Peace,
Nitin Patnia
Disclaimer: The author works as a financial advisor in India. The views expressed here are completely his own and are a collective wisdom of numurous humans that co-exist or existed before the author. The author claims no right of originality of ideas but would like to assert the right to his style of writing. There is no intent to hurt anyone's sentiments with his opinions. It is just an honest expression by the author to help anyone who may be benefited from his writings. And a medium to express gratitude to all who contributed to benefit the author with wisdom.
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