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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: BGR who wrote (68736)	10/7/1999 12:03:00 AM
From: Don Lloyd	Read Replies (1) \| Respond to of 132070

BGR - (I am still looking for objective measurements. What if you and I both follow company XYZ for several years and come up with valid (as you predict) but dramatically different valuations? Who is right? As I said right in the beginning of this discussion, I am looking for an objective criterion for valuation, which can be codified and which doesn't give different results for different people. If, however, subjective valuation criteria are all we have got, I would rather go with the consensus opinion (aka market price) than with my individual one, as, unlike some on this thread, I harbor no delusions of being a genius.) Your entire descriptive approach is doomed to failure, although that is not limiting to your investment results at all. Economic value (shortened to value) and price are two separate entities and are determined by entirely different means, and your objective mechanism (calculated projected market exchange value)is still a third entity. The value of any economic good is an entirely subjective matter, unique to each individual, unique to a given time and place. It is only evidenced by an actual exchange of a given quantity of one good for a given quantity of another good, indicating that an individual's subjective marginal utility of the good received is greater, often much greater, than his subjective marginal utility of the good exchanged. Note that the law of diminishing marginal utility almost always applies as the quantity of a good owned increases. This is why a stock-rich company executive can sell shares to several non-stockholders at a single price, and have the result be a thought a bargain by both sides. Marginal utilities, and thereby value, can only be compared, not measured, and only compared at the instant of exchange, and only for a single individual, not for one individual to another. For the purpose of value, money is simply another economic good, having diminishing subjective marginal utility and only meaningful in terms of how much of it an individual is willing to exchange for a implied schedule matrix of other goods. While value has no units of measure, price is measured in dollars, or other units of a medium of exchange, and is only meaningful in a market. The price of an economic good is actually a potential range of numbers that only exists in the time interval between one market transaction and the next. The range is delimited between the highest bid of all the unsatisfied marginal buyers and the lowest ask of all the unsatisfied marginal sellers. The last exchange price recorded is simply an historical artifact, not binding on the potential price of the next exchange. Your desired objective 'value' results from the calculation and projection of both current and expected business conditions and results and attempts to determine a near term market purchase price that would allow an adequate risk-adjusted return for some future expected market sale price. Value investors rarely trade and represent a microscopic proportion of actual market exchanges, dominated by short term traders. Since the investment period of a value investor is much longer than for a trader, the actual absolute return must be much larger for a successful value investor to achieve an adequate rate of return. This implies that value investors will normally be sitting back with their potential buy and sell points far below and above the current market price range determined by the short term traders. In this sense, your interpretation of current price as being a consensus of value is unlikely to be valid. The short term traders who are pushing the price around could typically care less about calculated valuations. Good Luck, Don

To: BGR who wrote (68736)	10/7/1999 9:07:00 AM
From: Freedom Fighter	Read Replies (2) \| Respond to of 132070

BGR, I can assure you there are few geniuses out there. Certainly none in my mirror. I am being humbled this year as a matter of fact. I agree with you that there is some subjectiveness involved. But, if anything, that is what makes it work over the long haul. If we all came up with the same number, then that's what it would sell for. But since there is a variety of methods, short-term, long-term, momentum, technical etc...prices can and occasionally do vary enough that most value guys will come to the same conclusion even if their valuations are different by 10%-20%. We are looking for the occasional extremes. I'm not trying to convert you. I'm just trying to make you realize that the market is NOT that perfect. Wayne