Re: Oil’s Swift Fall Raises Fortunes of U.S. Abroad
Fair price… and remember it is subjective.
Intrinsic value is more of a philosophical concept and depends on future use of that asset. If you are going to sell it in the future, then intrinsic value should be the value you expect to get in the future minus your expected profit. If you are going to use it, then intrinsic value is how much you would ‘enjoy’ the asset. An old classical painting for example would hold varying intrinsic value to an arts connoisseur, an investor and someone like me with no appreciation for such arts. So, essentially, fair price or intrinsic value cannot be measured.
If ‘fair price’ or ‘intrinsic values’ could be measured, then there would be extremely limited activity in the markets. For example, if everyone knows that intrinsic value of a share of ACME INC is $100, then those people who have those shares will not be willing to sell them at anything less than $100 and no one would be willing to buy it for over $100. So, only those people who desperately need cash or have motives other than investment would trade that share. If everyone knew the ‘fair price’ of gasoline, then only those people who need it would buy it and there would be no speculative trading resulting in the fluctuations in prices you described earlier.