Ah, BO! You can make simple things sound so complicated.
It is a matter of utility, really. The party selling the equity has less need for the equity than the cash (and will perhaps buy a house - or whatever - with the cash raised). The reverse may be true for the party acquiring the equity. Or it may be that the risk tolerance for the two parties are different. In a market where valuation is fair, by your theory all transactions will come to a halt, which, evidently, is a sophomoric position. In a liquid and heavily traded market, prices always tend towards fair value, but that doesn't slow down the trading.
Tell me, were there any economics courses in your high school curriculum (lest you feel humiliated, I am not bringing up the issue of college here)?
As for my understanding of valuation, I was not speaking about my valuation, of course. I am willing to go by the market's valuation. It seems to me, though, that you feel that your understadning of valuation is somewhat superior to that of the market at large. I won't ask you what makes you think that is the case ... ;-) |
