califdreamer
Recycles dryer sheets
HaHa said:If I understand correctly what you are saying, it is very similar to Tobin's Q, introduced into the literature by James Tobin in 1969. Q is defined as the market value of a diversified set of securities divided by the net worth of these same companies, with assets stated at replacement value.
The effect of this is to cancel "goodwill". The theory behind this is that while their can be goodwill for an individual company, in a competitive capitalist economy the concept is nonsensical for all companies since whatever economic advantage that lay behind the goodwill would be competed away.
High Q, as pertains at present, suggests an overvalued market, low Q OTOH suggests undervaluation.
Q has been high for so long that many feel it is no longer relevant. I disagree. Things can stay odd for a long time. Remember going around looking like polyester idiots in the 70s? For 10 years!
To me it seems evident that investments will be made until at equilibrium the marginal investment commands a return equal to the marginal cost of capital. At that point, the value of firms taken in the aggregate should approach the net worth of the replacement value of their assets.
Ha
Yes, it sounds like the Q factor is essentially supply and demand or investor opinion or whatever you'd like to call it. Investors will pay more or less than the replacement value of the assets of the company.
I'm unclear on your last paragraph. Can you translate please?