Geoff Gannon April 19, 2006

Suggested Link: Price and Value

Bill of Absolutely No DooDahs has written an excellent discussion of price and value:

“Value is subjective. The price at which goods are exchanged is at the nexus of a disagreement over value, and while prices provide an objective history, prices provide little true information about value.”

This disagreement over value has interesting implications in the stock market, where we often consider only the small number of shares that trade on any given day. We talk about why these shares traded at a different price than they had the day before, and yet we ignore the fact that a great many owners chose to turn down Mr. Market’s latest offer.

With a few rare exceptions, buyers and sellers of stock do not just disagree over value; they have wildly different views of the stock’s value. Of course, they may also have different reasons for buying or selling, especially where the money they are directing is not their own.

Anyway, it’s a good post. I encourage you to read it.

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