What Is A Fair Market Value, Really? If Youre Going To Trade, Be Sure Its Worth It!
I've been involved in online trading, specifically with stock and index options, for several years. In this time, I've spent a great deal of time thinking about value and the fact that anything, be it a stock or currency or even a house, is worth exactly whatever someone else will pay for it. Sure, there are a million and one pricing models (especially in financial markets) that will tell you precisely what something should be worth. But in the final analysis, if nobody will pay that much, then it's not actually worth that price.
Let's illustrate this concept in a very simple fashion. I'm an American so I'll use U.S. currency to make my point.
What is a $20 bill worth? Without over thinking it and talking about inflation, exchange rates, etc. let's just say that it is generally believed to be worth $20.
Would you pay me $20 for a $20 bill? I'm going to guess probably not, as there would be no real reason to do so. You would have to go to the trouble of getting me your $20 and I would have to go to the trouble of giving you my $20 bill, and neither of us would be in a better position than we were before. Therefore, I would like to present the idea that a $20 bill is not actually worth $20 since nobody would likely pay $20 for it!
So how much would you pay for a $20 bill? Would you pay $19.99? Is it worth the effort for 1 cent? No? How about $19.50? $19? Shall I keep going?
In a free and fair market it is the market itself which determines value, and given a large enough market, that value should be fairly accurate. I read an article online some time ago about someone who decided to conduct an experiment just for fun. He put a new $5 bill up for auction online and began the biding at 1 cent. He crafted a creative description of the note, and waited to see the results. When it was all said and done, the bill did in fact sell - for slightly over $3. He then spoke with the winning bidder, who said he had made a profit many times online by purchasing currency for less than face value (including a $20 bill for less than $10 as I recall).
The conductor of the experiment left it at that - nothing more than a somewhat humorous exploration into what people think something is worth. But to me this meant so much more.
A dollar is not actually worth a dollar... so what is it worth? What would you trade for $1? For $20? For $100? $1,000? And if a dollar isn't actually worth a dollar, is a share of stock worth $50, or in fact anything at all?
The answer is yes. At any given moment it is worth precisely what someone is willing to pay for it. No more, no less. Money and value are merely ideas, they are not absolutes.
Consider this carefully the next time you are convinced that the stock, option, currency, house, or anything else you want to buy, is worth what you're about to pay.
Jonathan van Clute is a full time investor, educator, speaker, and online options and sports arbitrage trader. In addition to his business activities, he is also a musician, video editor/animator, and one of the world's greatest Segway Polo athletes. He can be reached via email at jonathan@PMLinvestments.com and is speaking at an upcoming teleseminar, visit http://www.snurl.com/vcfmv for details.
Latest News
 Xinhua | Microsoft's Ballmer to CES: keep investing in tech despite ... Scientific American - Las Vegas , NEV. -- In his first ever CES keynote, Microsoft CEO Steve Ballmer yesterday acknowledged the tough economic times, but urged companies not to ... Microsoft: the year ahead Microsoft releases Windows Server 2008 R2 beta Windows 7 beta available worldwide on Friday |
 Wealth Bulletin | How to avoid a Madoff fund San Francisco Chronicle, USA - Feeder-funds (hedge funds or funds that do all their investing through another fund) and funds-of- funds sold investment services to individuals, ... Fund-of-Hedge Funds Lacked Technology to Avoid Madoff Losses D Bank declined offers to invest with Madoff |
 Express from The Washington Post | The Best Investment Values in a Decade Motley Fool - These days, we're presented with what Ron Muhlenkamp a few months ago called "the best investment values we've seen in a decade." Obviously, the market has ... You Are About to Make a Bad Investment The Flight to Safety Could Burn You Wednesday's Biggest Stock Stars |
 Dividend.com | Billionaire investor places next supermarket bet MarketWatch - Yucaipa's investment funds have been aggressive buyers of Whole Foods shares since Nov. 24, spending a net $98 million to amass the stake. ... Activist shareholder buys 7 percent stake in Whole Foods Billionaire investor Burkle bets on Whole Foods |
Thomas, McNerney & Partners Promotes Three Members of Its ... PR Newswire (press release), NY - Thomas, McNerney & Partners is a health care venture capital firm with approximately $600 million under management, focused on investing in life science and ... |
 Markets Media News | Uma Thurman No Help to Arpad Busson in Madoff Fraud’s Nightmare Bloomberg - In mid-December, EIM disclosed it was one of at least a dozen funds of funds caught up in the massive alleged fraud perpetrated by New York investment ... Hedge funds' year is worst ever, and fall may continue Blackstone To Rationalize Single Manager Hedge Funds Businesses In ... Hedge Funds Meet Their Match |
US investment in IT would create jobs, group says ITworld.com, MA - by Grant Gross A US$30 billion investment by the US government in broadband, health IT and smart energy grids would create or retain nearly a million jobs, ... New ITIF Report Documents How $30 Billion IT Stimulus Package ... $30B IT Stimulus Will Create Almost 1 Million Jobs |
Appleseed Fund Ranked by Lipper as Top Performing Midcap Value ... CNNMoney.com - "Since the Appleseed Fund's inception, we've shown it's possible to outperform the market by investing in companies with strong sustainability records and ... |
Invesco Fund Loss Stirs Investor Fears Wall Street Journal - By DIYA GULLAPALLI 'Stable-value" investment funds have been one of the last havens in employee-retirement accounts. But one, advised by money manager ... |
New T. Rowe Price mutual fund eyes global investment Bizjournals.com, NC - T. Rowe Price Group Inc. is launching a new mutual fund seeking reward amid the risks of global fixed-income investing. The Strategic Income Fund will ... |
Resources
-
No Money Down - Creative Real Estate Investing!
Learn how to control real estate Without credit checks and no money down! You can Buy With No Credit!
-
real estate foreclosures- home69
Proven real estate Investing course specializing in foreclosures and pre-forclosures.
-
Real Estate Investing
How To Start And Run Your Own outrageously Profitable Fixer-Upper Business In As Little As 45 Days, even If You Can
-
Foreclosures - Real Estate Investing - Short Sales.
Learn about foreclosures and real estate Investing techniques like short sales and subject to financing
-
Online Trading for Financial Freedom - stock daytrading strategy.
Stock index trading strategy for beginning and experienced traders alike.
-
Real Estate Investing - Foreclosures
How To Start And Run Your Own outrageously Profitable Fixer-Upper Business In As Little As 45 Days, even If You Can
-
Real Estate Investing Course for Profits in Investing
Real estate Investing course reveals proven real estate Investing strategies using Lease Options and Creative Financing where you can earn big money Investing in real estate with no down and no credit
-
Make money stock trading, day trading, Investing and trading options like the pros!
Turn $200 into $4,630 in 30 days by trading options online from your home PC. Step by step instructions for novices or investment pros. Make money stock trading, day trading, Investing and trading options like the pros!
-
Make real money Investing in real estate by Lou Vukas
Lou Vukas gives you the insider secrets to making real money in real estate regardless of your credit, finances or location at realestatefortunes.com.
-
Real Estate Investing
eBook on Real Estate Investing and Real Estate Marketing