Equity Rollercoaster - What Are Stocks Really Worth?
Dang: up 4% 2 days in a row, then down 5% then next. I am running out of Dramamine. What’s up with all this? I was listening to BB’s weekend program, when a caller came up with the epiphany; I paraphrase: no one knows what stocks are worth. Lightening bolt. That is so true. For example: take X. The price started to decline to the 70-90 area. Many, including CAPS members and FOOL Columnists analyzed the 10K, the growth prospects, and financial strength, and said: by golly, this thing is worth much more, perhaps even a 2-bagger. Then the stock market crashed, and it is trading at 30, give or take.
Question: what is X really worth? 30, 80, 150, 300 or 3? Who knows? Anyone?
Real Question: when equities start to head up, what will be their benchmark? Another way of asking this is: how long of a memory do investors have? Are they going to remember that X was at 20 at the low, or that some thought that it was really worth 200? I am betting on that latter. IMHO, stocks do have an intrinsic value: book value + financial strength + growth prospects. From this perspective, 200 is much closer to the truth than 2.
Sorry: just human nature