Let me start with a story:
Moodha was always a daydreaming fellow; interestingly, his wife Moodhi always kept in pace with her husband, diligently.
“I have been considering buying a cow as soon as I have some money.” Moodha said to his wife. She liked the idea and decided to get some extra pots from market for the milk. After returning from Market, Moodha observed that his wife had bought five new clay pots.
“But we need only four. Why did you get five pots?” Moodha asked curiously.
“Oh, that! That is for carrying a little milk to my parents.” Moodhi replied.
“Carrying milk to your parents? Without my permission? How dare you!” shouted the enraged husband.
“If I can milk the cow and look after it, I will do what I like with this milk!” she yelled.
“You will not! It is my cow I paid for it….” soon they became violent. First Moodha broke the fifth pot, then his wife broke the rest. Eventually they would ransack their own belongings in the house.
People began to gather outside the house and witness a spectacle. Just then a wise man in the village began passing by the house, got them to behave and asked the reason for their unrest.
“This woman wants to give the milk from my cow to her parents!” Moodha argued. “But I am to tend that cow and milk it. Why cannot I have the right to give my parents?” Moodhi interjected.
“But I never saw a cow with you guys!” the wise man of the village asked surprised.
“Oh no! The cow is yet to come.” Moodhi replied.
“When is it going to come?”
“When I have the money…” Moodha declared.
“So, you are fighting about the milk of a cow that hasn’t arrived as yet?”
“Yes sir, that’s perfectly right.” The bickering couple replied.
“And you trashed your own home for it!”
This amusing, yet a parable of wisdom, has more wisdom to offer than what may be obvious.
Not long ago a group of billionaires went on a borrowing spree from many banks. With the extra money they loaned, they earned an exponential gain in “valuation.” Their stocks rose and their life of excess indulgence went on unabated. Yet after a few years they spent all their money as their businesses began to collapse. Soon these businessmen fled their countries while their assets purchased from borrowed money were sold by at a great loss. Their exponential “valuations” eroded faster than they were created.
In the past few months since the advent of pandemic the economy of every country has been hit. Owing to the lockdowns every nation’s economy has been tested to its limit. Every government is struggling with its finances. Their social welfare systems have been overextended. Not surprisingly the GDP projections of every nation has become negative.
We have been listening about great “investment funds” doing rounds in the media, asking us to invest billions in sectors like telecommunications and retail. Yet these very two sectors are already taking a beat. Their affiliated companies have been creating more subsidiaries to offload their debt to become “debt free.” And since these debt-ridden companies also own India’s major media conglomerates a barrage of propaganda is being used to confuse people into buying their stocks from the stock market, a market who collapse is imminent.
In the United States, a new age car company, which barely sold over 300,000 cars, is being deemed as the “most valuable automotive company.” This company is without a clear profit, has many product flaws and substantial debts.
Why is it that around the world we have come to adore debt-ridden companies and individuals instead of those who create true and lasting value? To put it simply: People have lost their understanding about value besides confusing it with temporary valuation gains.
Value is an established worth in the present time. It is something you can receive in currency if you are to sell it, lease or offer it on subscription as of today. Valuation is a forecasted possible value of a product or service in the future provided it is to have certain qualities or features it has and their increased worth. Value is reality. Valuation is a projection.
It is easier to create imaginary valuation than real value. For example, consider you have a company and the company’s turnover is $150,000. If you are to buy 1% of your own company’s share for $10,000 – the valuation of the 100% share is to be at $1,000,000. While $10,000 is the real value you invested, $1,000,000 is the possible value of your company’s share, provided 99 more people buy 1% of your company at $10,000 each.
Value is always created by innovation, manual as well as intellectual work when it results in a tangible product or experiential services. Any value attributed to something that is neither experiential nor tangible is clearly only hypothetical. And while it does give vanity and finesse – it also distracts from the company’s actual development. Worse, it deviates the energies of its leaders from their production work on to advertising and social media projections.
To conclude: Valuation is the very hypothetical cow and its milk which the Moodhi wanted to give to her parents that Moodha was not allowing. True Value is those broken pots which were to carry the milk from the cow which has yet to come.
The easiest way to destroy our future is to ignore our lessons of the past and disengaging ourselves from the present.
Most “billionaires” are apparently the ones with greater valuation and almost no clear value. Such “rich” individuals can pose to be rich so long as people do not understand the delusional game of Valuation or when people have no surplus currency to pay for the shares or invest in vain “private funds.”
As a matter of fact, with pandemic the world economies are now in a state of flux. This is sure to cause extreme stress to the fund investor to service their mortgages and pay for their loss of income. And all this is not going to help those funds, and their investors and billionaires with their castles in the air.
When a startup “raises money” it is not “profit,” but a certain debt which is to be repaid through “Value Creation.” The intent of “valuation,” which a “possibility of value creation” based on assumptions, presumptions and projection, is to attract more debt through inventing a notion of “credibility.” True credibility can be achieved only through delivering on promises, i.e. through profitability. The problem with startups today is that they have become some sort of a quasi Ponzi schemes – raising money from one investor to repay another. 90% of startups that raised millions 10 years ago are yet to post profits, worse have already withered even before weathering the storm.