What is New Zealand worth?
It seems a bit weird to put a monetary value on a country, but lately there have been stories about the bitcoin bubble being worth more than New Zealand.
The comparisons were made when bitcoin's total market value surpassed New Zealand's annual GDP of about $265 billion.
That makes no sense. New Zealand is worth way more than its annual GDP. And bitcoin generates very little value other than for market speculators.
In fact, the bitcoin bubble has surpassed $400b now — but it's still a lousy comparison.
It's kind of like comparing the value of one person's house and savings with another's person's salary, then trying to work out who is richer.
It made me think, though — what is New Zealand's market value?
Could we value the country like a company?
Companies are given an earnings multiple. That's the number of times a company's annual earnings can be multiplied to reach its market value.
When a stock is listed and already has a clear market value it's pretty easy to work backwards.
You divide its market value by its earnings to get a multiple.
When a company is not listed the multiple has to be estimated based on the industry type and benchmarked against other similar companies.
Promising companies like technology start-ups tend to have high multiples because although they don't yet earn much they have great potential for growth and future earnings.
They also tend to be higher risk.
Mature businesses tend to have lower multiples.
Usually their earnings are strong but they have less potential to grow dramatically and tend to be lower risk.
Right now, because of the long bull market, stocks generally have high price to earnings (P/E) multiples.
Wall Street's S&P 500 share index and New Zealand's NZX-50 have been trading at average P/E multiples above 20.
That sort of figure used to be reserved for high-risk, high-growth stocks. The fact it's now the average is seen by some as a sign by some the market is due for a fall.
So what sort of multiple does New Zealand deserve?
There's certainly subjectivity involved in these valuations.
I feel like being optimistic about our future. New Zealand is still a young country and its economic transformation from a pastoral economy is only just starting to gather momentum.
There's good cause to build a strong growth premium into our future.
But we are also underpinned by mature agricultural and tourism industries that generate good revenue.
That keeps the risk down. We're a good bet, I reckon.
That's one of the reasons our currency has been so popular with investors for the past 15 years or so.
I'm going to give us a multiple of 22.
Then you have to decide what we multiply that by. You could go with annual GDP. For the record, that would give New Zealand a value of close to $6 trillion.
But perhaps GDP is a bit too much like total revenue.
How about if we multiply by New Zealand's annual export earnings of around $65b? You get a total value of $1.43t.
Yeah! Take that, bitcoin. Come back and compare notes when your market value has grown another five times over.
Okay, but was my back of the envelope calculation anywhere near the mark?
It turns out Statistics New Zealand is actually keeping count of New Zealand's net asset value.
It has added up the total value of everything we own in this country — private wealth and government wealth, financial and non-financial assets.
So if you include all our savings and investments plus the value of all our land, houses, business machinery, my record collection, your fancy mountain bike and the rest — you get about NZ$4t in asset value.
Then you subtract our total national liabilities — all our debts and foreign owned bits: around $2.6t according to Stats NZ.
They estimate that gives New Zealand a net asset value about $1.4t — based on figures for the year to March 2015.
Given what has happened to property prices and other asset values since then, that figure is probably a bit higher now.
But it's not too far off my hypothetical valuation, so I'm happy with that.
New Zealand's still worth more than Apple — the world's largest company — with a market value of around $1.2t.
At this point, an Oscar Wilde line springs to mind. One of his theatrical characters, Lord Darlington, describes a cynic as "one who knows the price of everything and the value of nothing".
You'd have to be a pretty cynical to put a price on a nation.
Prices are useful markers.
They help us transact our way through modern life. But as the number of zeroes grows longer, the meaning behind the number diminishes.
New Zealand's real value is immeasurable.
A nation is more than the sum of its parts. It is a shared idea, an ideal.
There's many intangible assets — like human spirit, kindness and ... love.
But it's fun to crunch the numbers.
And although it's less often quoted, it's worth noting that Wilde gave his cynic a witty comeback: "And a sentimentalist, my dear Darlington, is a man who sees an absurd value in everything and doesn't know the market price of any single thing."