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Tuesday, May 15, 2012

The concept of Current Value

We all want value. People talk about value all the time. Get value for your money. Quality over quantity. But what is value?


1. relative worth, merit, or importance: the value of a college education; the value of a queen in chess.
2. monetary or material worth, as in commerce or trade: This piece of land has greatly increased in value.
3. the worth of something in terms of the amount of other things for which it can be exchanged or in terms of some medium of exchange.
4. equivalent worth or return in money, material, services, etc.: to give value for value received.
5. estimated or assigned worth; valuation: a painting with a current value of $500,000.
In this blog, I will focus on the fifth definition.

 Last week, the Toronto Blue Jays signed Vladimir Guerrero to a contract. Guerrero was once one of the best players in the game. A great outfielder with a terrific arm and as prolific a power hitter as the game has seen in many years. He was feared when he was at the plate. He is likely a Hall Of Famer.

You hear people say all the time "How can you throw away 20 years of marriage?"
That is an interesting statement. Of course, it can't be discounted easily, because so many think it and say it. That doesn't make it right, but it doesn't make it wrong either. 

No matter how much you have invested in something, be that time, money or energy, it is only worth the value that it actually is at the current point in time. Just like if you buy a horse for 100k. You put a lot of time, money and effort into it, but if you paid too much and it was only currently worth 20k, then that is what it is worth. You have to figure that out and then accept that. It sort of explains how some get caught up in maintaining something because they put so much in, when it may not be the best move for their present or their future. Kind of a good money after bad money sort of thing. Don't view what you have put in as justification to maintain it if it isn't what you want.
In that vein, Vladimir Guerrero is not even close to the player he was even 3 years ago, not to mention 15 or 20 years ago. His current value is as a marginal player that no other team would sign. He is likely washed up.

Everything depreciates. That new car you bought a year ago now has begun to rust. It has lost that new car smell. It still works,  and it works fine, but it is not what it was when it rolled off the factory floor and into the dealership. Five years later, the tires have been replaced twice, the battery once and all sorts of other assorted repairs were done to maintain the value and viability of the asset.
After ten years, even more maintenance is required and some things cannot be fixed. The engine doesn't run like new. The transmission is not smooth and sometimes sticks. The steering is poor and veers one way or the other. At fifteen years, it is most likely an old piece of junk and has very little value, other than sentimental value.

While people and investments are not cars,  there is something to be gained from relating them to it.
Just because you have years in..doesn't mean it is worth more now. That doesn't mean that it doesn't have any value anymore,  just that the current value may (notice I wrote in might) not be what it was when it was first valued. At that time, the current value was likely very high.
 Now, it is also possible that it has increased in value,  at least in terms of the view of the person valuing it. The thing to remember is that it neither has more or less current value you have had it longer. It is worth what it is worth.  If you don't value it, then you don't value it. Just because you have had it a long time does not mean you should value it now unless it has retained the value you need and want it to have now. 

Sure, loyalty and a relationship mean more because they have endured over time. They mean more but they aren't worth more. They are worth what they are worth. If that person isn't meeting your needs, currently, then they aren't worth what they used to be..or what you thought they were. The value is diminished. The current value is what you have to consider. Living in the past won't increase the current value. Just as a horse who used to be worth 100k is now worth 20k. He is worth now what he is worth.

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