- partial, because it frequently competes with purely speculative factors which influence the price in the opposite direction; and
- indirect, because it acts through the intermediary of people's sentiments and decisions.
Relationship of Intrinsic Value Factors to Market Price
I.General market factors
} Attitude of public toward the issue (leads to)
} Bids and offers (lead to)
} Market price
2.Future value factors
a.Management and reputation
b.Competitive conditions and prospects
c.Possible and probably changes in volume, price, and costs
e.Terms of the issue
- "If opinion were not founded in part on current dividends and changes therein, there would be nothing to prevent price and value from drifting miles apart." (1938: 191):
- "Since market price depends on popular opinion, and since the public is more emotional than logical, it is foolish to expect a relentless convergence of market price toward investment value. Corroboration of estimates [of intrinsic economic value] by subsequent market action, therefore, ought not to be expected. After all, investment value and market price are two quite different things."
|Price is not value.|
Pricing is not valuation.
Pricing models are not valuation models.
Pricing models include:
capital asset pricing model (CAPM),
arbitrage pricing theory (APT), and