Myles of Investments

Read about my successes and failures. Learn from my experiences and gain insight without losing any cash!!!

Lesson: Catching a Falling Knife
Lesson: Currency Exchange
Lesson: Mutual Fund
Lesson: Paid to Wait
Lesson: Pricing in a Downturn

This is where you’ll find find my Blog. I will comment on the latest news relating to investing, real estate, and the financial markets.

Stock Market Price

The stock market price for a security, or share is really the price that people at that time are willing to pay for the equivalent fractional share of the entire company. So does the stock market price always correlate to the intrinsic value of the company? Value investors think not, and make a career of trying to decide when the quoted stock market price is either too high or too low, relative to what they feel is the actual value of the company.

In his book The Intelligent Investor, Benjamin Graham illustrated this point with his fictional character called Mr. Market. Let’s say you are business partners in owning a business with a man called Mr. Market, who is quirky, and will on any given day announce to you what he thinks the value of his half of ownership is worth, and that you can either buy him out, or sell your half to him. The interesting thing is that every day he will do the same thing, but sometimes his mood or other factors influence what he feels the company is worth. Some days he is elated with the prospects of the company and hears lots of good things, and had a nice walk to work as it was sunny, and determines the business to be worth a huge price for his share. Other days he is bleak on the outlook for the business, and worries because other competitors are having a hard time, or maybe he needs to sell because he has some personal loans that are coming due, and will let his share sell for less than what you think the company is worth.

Your decision as an investor is to determine what your share is worth, and decide if you would like to buy Mr. Market’s share at a low price, or sell your share to Mr. Market at an inflated price. So the stock market price day to day is what Mr. Market feels like, and is not necessarily representative of the intrinsic value of the company underneath. Remember this when you are trying to buy or sell a stock, and decide for yourself how Mr. Market feels today!