Value, What A Concept!


by Steven Sarnoff

Just a week after running over Ford, Tesla today overtook General Motors for the number one spot among US automakers for market value based on stock market capitalization.  Tesla’s drive higher has sparked renewed debate about the concept of value.

Differing opinions make markets. The financial media features many Wall Street analysts flouting Tesla’s share price rise, calling the stock clearly overvalued. Elon Musk, Tesla’s chief executive officer, couldn’t resist schadenfreude by trolling and throwing shade at short sellers with his, “Stormy weather in Shortville…” tweet.

Market capitalization is calculated by share price at a particular point in time multiplied by the number of shares outstanding.  You can see Tesla’s road map to the top in the chart below:


Data: FactSet, Chart by Quartz

Thinking about the concept of value, I can recall a day, back in the disco era, when I proudly showed my mother a new pair of black canvas shoes with orange translucent soles that I bought for only seven dollars.

She shot back, “They’re worth five.”

I also remember when wildfires were raging across San Diego and considering what was truly valuable.  It’s people and animals, not things.

But as to your investment dollars, the concept of value has a long history.  In the olden days, book value was compared to the market price of the stock. If book (liquidating value) per share was greater than the going price, a stock had value.  Investors also looked at value in terms of dividends and/or earnings, i.e. 10 times earnings and/or 20 times the dividend.

In the 1960s, that concept of value began to be supplanted by glamorous terms such as growth, future potential, imminent progress and expansion, new product acceptance, and many more.

Musk recently tweeted, “A stock price represents risk-adjusted future cash flows.”

In economics and in my forte, technical analysis, value is simply the price someone is willing to pay for something.

So what’s a trader or investor to do?

When it comes to considering value, it’s helpful to differentiate between investment and speculation. Speculating is short-term.  Day-to-day, assessment of value may not be as vital to your outcome as a technical measure such as momentum.

Investing is done over time. Investors will be well-served to first consider value when risking their money in the market, because, like fundamentals, eventually value will out.

I hope you found this article informative and entertaining.  If you would like to receive my market intelligence and recommendations each week, click here to subscribe to Options Hotline.

Best regards,


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