Value sustains through recessions

Many economists believe that the present economic depression is as bad as the great depression of the 1930s. I was not born then, neither were most people around me, hence I cannot tell for sure. But as I wade through these most difficult times I dare to ask, how has this recession changed our spending habits? How many of us have stopped dining outside in restaurants because of the recession? Or stopped seeing movies in multiplexes? Or visiting shopping malls and buying stuff, we probably could do without? To those who can sincerely answer these questions in the affirmative, I bow my head in salute. To the remaining vast majority of mere mortals like myself, I say that although we cannot curtail our basic inclination to splurge (thanks to the multiple credit cards that have been thrust upon us by ever willing banks) , we can definitely fine tune our instincts to seek out the best value deals and extend our purchasing power ever more. We need to stretch that dollar and make it go further. We need to chase value. Whether you are a seller or a buyer, you need to chase value. Individuals, businesses, suppliers, customers and investors, all need to chase value. While this is a most noble intent even in the best of times, in recessionary conditions like these it could mean the very difference between survival and extinction. And why is that? Simply because history has proven time and again that recessions and booms are cyclical. One simply follows the other. Much as we believe the adage that whatever goes up has to come down, it is also equally true that whatever goes down has to come up! The point being that this recession will end for sure – in the meantime we have to survive by seeking more bang for our buck.

Which brings us to the question – how should investors seek value? And how should businesses publish and report value. As far as investors are concerned, value investing is a field which is very well researched and understood. Yet it fails in many situations because the value investor relies solely on the published financial results. In times like these, the value investor has to look at more than just the financials. He has to understand the underlying value creating processes of the businesses that he is investing in. Similarly, business houses need to publish more than just the financial statements. They need to inform their investors about the characteristics of their business that generate value for their customers and how they are focused on managing and growing those very parameters.

Interestingly both purposes can be served easily via an Intellectual Capital (IC) Report. Business houses need to start publishing an IC report along with their annual report or even with their quarterly disclosures. Investors on the other hand need to start demanding such reports from the management of their holding businesses and use it for making value based investment decisions.