Price, value and the cynicism of Wall Street

Oscar Wilde defined a cynic as someone who knows the price of everything and the value of nothing.


A recent Financial Times article (‘Close call in battle to be world’s most valuable company’, 14 May) reflects the cynicism of Wall St and the pressure listed companies face to ignore value in the worship of price.


To assess the value of a company I need to know about innovation, product quality, customer perception, employee engagement, integrity and culture,  risks inherent in their strategy; their global footprint and their regulatory licence to operate; and through this assess the returns that it will generate for shareholders, and society.


Why should we ignore the true character and potential of a company while being so concerned about whether Apple or Alphabet/Google will temporarily have the biggest market capitalisation in the world?


Elsewhere the paper reports that more than half of the FTSE 350 companies with traditional pension schemes have paid ten times more in dividends than they have spent on fixing pension deficits.


There are two ways of thinking about a company’s value. One is to see it as a piece of financial engineering, from which impatient shareholders extract immediate payments.  The other is to see it as the engine of tomorrow’s growth. At a time when UK companies have become net savers to the tune of £100bn a year it is urgent that we reassert this second perspective.


Pandering to the short term cash demands of shareholders is bad for companies, bad for shareholders and bad for society.


This post originally appeared here.