Value is a touchstone to most people. Financial analysts try to estimate it, as they study a company's books. They calculate a break-up value, a discounted cash-flow value, a market value. Economists try to model it, as they forecast growth. In classical currency models. they input the difference between US and Euro zone inflation rates, growth rates, interest rates and other variables to estimate an ideal 'mean' value which, over time, they believe the exchange rate will revert.
All this implies that value is somehow a single number that is a rational, solveable function of information. Given a certain set of infomation about an asset - a stock, a bond, or a pair of wooden culottes - everybody if equally well-placed toact will deduce it has a certain value; they will all hang the same price tag on it. Prices can fluctuate around that value; and it can be hard to calculate. But value, there is. It is a mean, an average, something certain in a chaos of conflicting information. People like the comfort of such thinking. There is something in the human condition that abhors uncertainty, unevenness, unpredictability. People like an average to hold onto, a target to aim at - even if it is a moving target.
Sunday, 28 December 2008
The value of value
Here's a snippet from The (Mis)Behaviour of Markets by Benoit Mandelbrot about the attempt to ascertain value in markets which rang quite true with me: