jackson@curium.DEC (SETH JACKSON 297-4751) (03/24/86)
>> Wrong. The price of a share of stock is the net present value of the >> company divided by the number of shares outstanding. Even if two >> companies had the same net present value (highly unlikely), their >> share prices would differ if they had a different number of shares >> outstanding. >WRONG WRONG WRONG !!! > >The price of a share of stock reflects the OPINION of the most recent >buyer of the stock as to a lower bound on the FUTURE value of the >stock. This price has little (if any) relationship to the value of the >company (hence the Grahame strategy of buying undervalued companies) or >of any other RATIONAL attribute of the company. The value of a stock >is set by EMOTION, not rationality. I'm afraid that you're the one who's WRONG WRONG WRONG. It seems as though you misunderstand the meaning of the term "present value". Present value is the value of the EXPECTED future earnings of the firm, discounted by a percentage that reflects the PERCEIVED amount of risk. The price of the stock is always a function of the net present value of the firm. Since emotions have an effect on perceptions, this is perfectly consistent with stock prices being set by emotion. -- Seth Jackson