Weekly Puzzle #2: Price or Value?

The Set up
In the utopian world, maximizing a company's stock price is equivalent to
maximizing it's value, since markets are efficient. But what if they are not?
What if markets are driven by short term considerations and investors? In that
case, maximizing prices is not the same as maximizing value.
Price versus Value
To understand the contrast between price and value, think of the two processes
separately. The value process is driven by a company's capacity to generate and
grow cash flows in the long term and the risk in these cash flows. In that process,
it is fundamentals that drive value up and down. The pricing process is one of
demand and supply, with everything that affects demand and supply causing
prices to move up and down. In particular, mood and momentum (which are not
fundamentals) can cause prices to move even when value does not. Here is a
picture of how I see the contrast:

The friction between the two is at the heart of every investment philosophy. A
trader, for instance, is a pure pricing animal, focused on buying at a low price
and selling at a high one. Not surprisingly, the tools of a trader are designed to
capture momentum shifts and may very include not only
multiples/comparables but charts. A pure value investor buys for the
fundamentals and is not swayed by market movements to the contrary, though
to make price appreciation, the price has to adjust to value. A believer in
efficient markets comes to the conclusion that while price and value can be
different, the differences are random and that looking for them is a waste of time
and money.
If you are interested in more, you can check out this post that I put up on the
difference between value and price at the time of the Twitter IPO and follow up
with a YouTube video that I made on the topic.
Laurence Fink's Advice to Companies
In this interview, Laurence Fink who heads Blackstone, the largest institutional
investor in the world, argues that firms should focus less on prices and more on
value. He uses earnings reports as his lever, arguing, in this letter to S&P 500
corporations, that companies should be more focused on delivering on long
term value drivers and not on beating earnings expectations by a cent or two.
Mr. Fink has said some stupid things in the past but this letter actually contains
grains of truth, though layered with lots of hypocrisy and double talk. This
advice is neither unusual nor novel. In fact, Mike Jensen, a key founder of the
efficient market school, wrote a much more pointed article arguing that
companies should sometimes dare to keep their stock prices low, in order to go
for higher value. In fact, Mr. Fink is part of trio of heavyweights, the others being
Jamie Dimon, CEO of JP Morgan Chase and Warren Buffett, value investing icon,
who are pushing for long-termism at US companies and are supposedly looking
at proposals to make it happen.
Questions/ discussion issues

1. Do you think that investors are collectively guilty of being short term in their
thinking? What evidence can you offer to back this up?
2. If yes, who do you think is more short term? Instiutitional investors or
individual investors? Any evidence?
3. Are managers at companies more long term or more short term than
investors? Why?
4. Mr. Fink is suggesting that if companies don't tell compelling stories about
where they are going, investors will step in and fill in the details. Do you
agree with this statement? If yes, what is the solution?
5. If your end game is a more efficient market (where value and price
converge), and you were a top public policy official or a politicians running
for high office, what changes would you propose to market regulations, tax
laws and investor rights to make this happen?