It's interesting to think about why a company would be valued at something other than the value of its assets. The only answer I can see is investors are guessing what other investors are thinking about the company and its stock value.
I am not at the level of financial/math understanding as some of you seem to be, but I found this phrase startling.. I'm surprised it got any traction!
I think you guys are over-analysing it... Thankfully, 3 Yrs to Go stepped in with exactly my thoughts:
But how do you value an asset? Pretty much the same way you value a stock, by discounting expected future cash flows.
Stocks go up, generally, because companies build and invent things that people want that didn't exist before. In other words, they create value and that value accrues to the owners of the organizations doing the building and inventing.
Companies aren't in business in order to remain static; the majority make a profit of some kind. Investors want to buy into the future profit stream, just like bond buyers want to buy into an income stream.
I must say I don't get the point of looking that much at 'assets'. With most things of any value, the whole is greater than the sum of the parts. When you buy a pair of pants, you're not buying 10,000m of cotton thread, a plastic button, and a metal zipper, you're buying valuable body-covering "pants-ness" into the future. You can take .02 of flour, a .10 egg and make it into fresh pasta "worth" a few dollars...
It's about the positive power of transformation. Also, sustainability, contacts, distribution. If you buy Coke you are buying all that intangible stuff.. all part of the likely power of Coke to continue making products that people will buy.
The desire to make and transform 'stuff' and the profitability of doing so may experience a lull here and a Kim Jong Il there but it can never be completely extinguished as long as the world survives. Human nature will keep stoking the fire.
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I like the quote posted by wab.. I sorta buy it, but in most parts of the world, I'm sure beer is expensive compared to indigenous local entertainment. A Broadway show is a ridiculously over-produced anomaly; there are plenty of free poetry slams and jam sessions around these days, and an off-off B'way ticket can be had for $10 (which I dare say at this point might be the same as the price of a Heineken some places in NY).
More important, who knows if in the Westernized world there will come a time again when talent is cheaper than basic resources like food..?? ..we ignore that this is currently still the case in many places.