Falsehood of the day: ‘Company Value’ 1) MONETARY PRESERVATION OR GROWTH VALUE A

http://money.cnn.com/2017/01/06/investing/amazon-rules-retail-worth-more-than-almost-everyone/index.htmlSensational Falsehood of the day: ‘Company Value’

1) MONETARY PRESERVATION OR GROWTH VALUE

A company share value is meaningless. It’s a popularity contest. And not a meaningful measure of comparison. Most of the time one is investing in *psychology* – market momentum, irrespective of its fundamentals.

2) INVESTMENT VALUE (DIVIDENDS / APPRECIATION)

Investing in the dividends and appreciation of the company because of its fundamentals.

3) OPERATING VALUE (PROFITS)

A company’s market share, revenue, profit, and trends, are meaningful measures of comparison.

A company’s PRICE can be determined by a multiple of its revenue and profits in relation to the expected time horizon of returns.

4) EXIT VALUE

If owner/management wishes to exit, what can they sell the company for? This is usually a multiple of operating profit discounted by the loss of key management.

5) ASSET VALUE

A company’s WORTH is its fixed asset value at liquidation.

WHY DOES THIS MATTER?

Because the stock market functions as a savings plan for the country and for the world. So the financial sector looks at companies as a way to move money at low cost to where it will, in aggregate, across their portfolio, mix wins and losses into a profit.

So Amazon is worth more than sears, macy’s target becasue their revenues and market share are worth more than macy’s and targets.

Apple on the other hand is a fashion brand that becasue of the iphone could be eradicated quickly. Facebook more so. google less so. Although – the moment you can search by voice and actually get the information you want, the opportunity to advertise will disappear, and the company that succeeds at that will destroy google’s market value.