Value versus Price
Two Perspectives on Worth
| VALUATION | PRICING | |
| End | truth -- intrinsic value | illusion -- marginal opinion |
| Means | method of appraisal * | auction mechanism |
| Terms | case-by-case | standardized |
| Institution | private contracts | public exchanges |
| Approach | rational, logical | arational, emotional |
| Knowledge | economics | psychology, sociology |
| Principle | theory of investment | ad hoc, empirical |
| Result | value range | single price |
| Precision | highly imprecise | highly precise |
| Accuracy | within value range | outside value range |
| Investment | real assets | claims on assets |
| Units | operating enterprise | common stock issue |
| Data Source | company reports | market-generated |
| Measurement | absolute | relative, comparative |
| Analysis Type | investment | portfolio of stocks |
| Analysis-Units | one company | compare two stocks |
| Analysis-Time | one point in time | compare two times |
| Horizon | long-term (years) | short-term (minutes) |
| Frequency | sporadic, on demand | continuous supply |
| Stability | slow, small changes | quick, large changes |
| Application | individual stock selection | stock trading |
| * In contrast, the method of anticipation emphasizes earnings growth for the sake of growth rather than the sake of value. Thus, it is not recommended for purposes of estimating value. | ||