>|> Tobias in his "The only investment guide you ever want (or something
>|> close to this title)" :
>|>
>|> Value (worth) of a stock is what the buyers are willing to pay
>|> for it.
>|>
>|> What a buyer wants to pay is what the buyer things the stock is worth.
>|>
>|> This circular definition is inherent to the way valuation of a stock
>|> is done. This is not just true for stock valuation. Similar circular
>|> concepts are inherent in the valuation of real estate, collectibles etc.
>|> May I extend this to say that whereever there are Supply and Demand
>|> forces are acting to set the price of anything, circularity is inevitable?
>
>I disagree strongly. Stock has an intrinsic value based on either its value as ownership in a company (and therefore its value if the company is sold, and the value is realized), or as the source of an on-going and increasing stream of dividends.
>
>Don
>
I agree 100% if your definition of value is the present value of a
dicounted future stream of dividends. But the circularity inherent in the
definition of value (or worth) is seen in the following example. If someone
tells you that he bought a tulip for $1200, you will laugh at him. But if
you saw a tulip in a shop yesterday for $2095, you will even tell him,
"Hey, you got a bargain on that tulip.". The tulip example, though sounds
academic, did actually take place in 18th century Holland (during the
tulip mania and after the tulip crash the "value" of tulip dropped from
1200 to 100 or so.)
I can see a debate between the differences between "price" and
"intrinsic value" here. If in cases, where intrinsic value can be
determined, the use of that value is limited only to finding out
if the "price" (determined by supply and demand) is at a bargain
