Re: Oil’s Swift Fall Raises Fortunes of U.S. Abroad
So which of the above is intrinsic value of an asset - fair value or fair price
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.
Re: Oil’s Swift Fall Raises Fortunes of U.S. Abroad
So per your definition fair value is market price. In that case, indeed fair value is identical to market price 100 pct of the time.
Wrt intrinsic value being subjective, I agree. For if everyone knows the intrinsic value there will be no mkt. As you stated. There are several ways to calculate this. But the actual results would vary based on approach and assumptions.
Any link that shows fair value is market price? Since markets can be irrational over the short term, I find it surprising someone would define fair value to be the market price.
…the price that an asset or investment can be bought or sold at. Quoted market prices of instruments traded on exchanges give an accurate reading of fair value. …
a price paid by a buyer who knows the value of what he or she is buying, to a seller who also knows the value of what is being sold, i.e., neither is cheating the other
Fair value is the price that two willing parties are will to pay for an asset or liability, preferably in an active market. A less accurate measure of fair value is when there is an active market for a similar item, while the least accurate measurement method is to use discounted cash flows associated with the future performance of the item…