The value lesson nestling inside every Easter egg
Value is all about comparing what you pay and what you receive – and identifying value in assorted Easter egg options is no different from doing so in the stockmarket
This time last year, give or take a million, Britons spent £380m on Easter eggs. So suggests research by comparison website Finder, which also notes the country ended up buying a total of around 80 million ovoid chocolate treats of one kind or another in 2020. Very roughly, that works out at a fiver an Easter egg although, of course, that average encompasses a broad range of prices.
Using this year’s pricing, for example, you might – obligatory Easter egg pun alert – ‘shell’ out just a pound or so for a deal on a Cadbury’s Mini Eggs Easter Egg (130g); £3 for a smaller Moo Free Original Easter Egg (80g); or £6 for a Buttermilk Egg (165g). Alternatively, if you were more inclined to frequent Fortnum & Mason than a high street supermarket, a 227g egg would set you back £45. (It is currently out of stock.)
We have included the weights to show we are playing fair by ensuring our egg selection are broadly all the same size – in other words, there is nothing that would be better suited to a place in the latest Guinness World Records annual than on a supermarket shelf. That aside, then, what information about the various eggs can we glean from the above paragraph? Absolutely nothing, aside from how much they cost.
The price of an Easter egg can tell you if it is expensive or cheap but it tells you nothing about whether it is good value or not. Value is all about comparing what you pay and what you receive and identifying value in Easter eggs is no different from doing so in the stockmarket or any other walk of life. Herein, though lies the problem – value can be subjective.
So while the simple Mini Eggs Easter Egg might suit many people very nicely indeed, paying a bit more for the dairy-free, gluten-free, vegan Moo Free egg could be your preferred call if your child were less tolerant of certain foods. Equally, you might consider the £6 Buttermilk Egg money well-spent once you factor in how environmentally-friendly it is in terms of CO2 emissions, water use and recycling (according to Uswitch data).
And two people might look at the intricately hand-decorated Fortnum’s egg, compare the price with what they actually receive for the money they pay – and come to very different conclusions on whether or not it represents good value. It is the same when you invest except that, with companies, what you have bought is not exposed immediately (or once the foil is ripped off) but reveals itself slowly over the time you own it.
These days, an investor’s view of whether or not a company is good value will often be based on their subjective take on what will happen in the future – which is a tactful way of saying it is a guess. And when it comes to the stockmarket, subjective views of value, based on guesses of what might happen in the future, can be a recipe for huge disappointment.
Breggs-it and more
After all, if a decade that began with the global financial crisis – and has since taken in Brexit, the election of Donald Trump and the Covid-19 pandemic – has not taught us that humans are terrible at forecasting, then we have not been paying attention. This is why, here at The Value Perspective, we build our entire approach to investing on the foundation stone of objective value.
We acknowledge at the outset that we cannot know with any certainty what the future holds so instead, when looking at a business, we dig forensically into what it has done in the past. We want to know all we can about the assets it already has; what the management team has previously done; and the profits the company has already shown it can make.
What is more, we want to know whether the company’s balance sheet and funding structure can protect us against an unknowable future. Is the balance sheet strong enough today? Is it strong enough should profits come under pressure from some unknowable event? And, if the consensus view of the future is dashed, will the company be able to survive?
This focus on objective value and balance sheet protection is rarely seen in the stockmarket today but it does provide investors with a much more solid grounding, enabling a better appraisal of whether what looks cheap also equates to good value. And, scrambling to finish with a few more egg puns, as hard-boiled exponents of the investment approach, here on The Value Perspective, it goes without saying we consider it to be cracking.
Fund Manager, Equity Value
I joined Schroders in 2000 as an equity analyst with a focus on construction and building materials. In 2006, Nick Kirrage and I took over management of a fund that seeks to identify and exploit deeply out of favour investment opportunities. In 2010, Nick and I also took over management of the team's flagship UK value fund seeking to offer income and capital growth.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
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