WITH all the excitement—bordering on raging hysteria as usual—regarding the Securities and Exchange Commission (SEC) decision regarding the online news site Rappler, let me give this as my final word for the moment.
In my more than 40 years in the financial and investment business, this is the first time I can remember the general public taking any interest whatsoever in securities law. That may not be any sort of big deal to you. But understand that clear, specific, enforceable and enforced laws governing the structure and capitalization of a big or small business is the only thing that allows the free market system to function.
If business enterprises are going to be privately owned—as opposed to government ownership—then there must be transparency and responsibility to the rules.
Government-owned businesses can get away with almost anything because public accountability is only at the convenience and whim of the government. It cannot be allowed to happen in the private sector.
The best analysis of the SEC decision comes from Atty. Peter Michael Dizon. You can find his clear breakdown and discussion at his PM Dizon Law web site pmdizon.com. I strongly encourage you to take the time to read “Why did the SEC revoke Rappler’s registration?”
Now, on to a less “The End of Civilization As We Know It” topic —investing.
What is the difference in value between the Leonardo da Vinci painting Mona Lisa and a bag of frozen carabao dung? The answer is nothing. Both are “priceless” because there is no suitable “price tag” that you can put on either, so, therefore, they are “worthless.”
Value is only determined by the amount of money, goods or services that someone is willing to exchange in return for possession of an item. How much money would the French government be willing to take in exchange for the Mona Lisa? Supposedly the Mona Lisa is insured for almost a billion dollars. But the French government probably makes that much each month or so from tourists who visit France to see the painting. Likewise, how much “value” would you be willing to give me for my bag of carabao dung?
In fact, if you gave me P100 for my bag of dung, that would make its market value larger than that of the Mona Lisa. Thus, value is determined by the market price and— more important—value is relative to something else.
Stock-market investors are always looking for value in the quest to find a stock that has a “market price” lower than its true value.
But almost all measures of a company’s value as it relates to stock price are bogus. A stock trading at P5 when the company has a “book value” of P10 is supposed to be cheap and a good buy. But that assumes that the company is going to liquidate all of its hard assets, close down, and distribute the proceeds to the shareholders. How many times has that happened?
In the United States, a company called Long Island Iced Tea Corp. changed its name to “Long Blockchain Corp.” and the price rose 200 percent in one day. Nothing had changed in its business except the name.
Here is the secret then. Quit wasting your time looking for value. Stock prices do not increase on value. They increase on people buying. So, if a lot of investors think the value of Long Island Iced Tea Corp. is greater because of a name change and buy the stock higher, ride along and do not ask any
questions like “Why?”
E-mail me at mangun@gmail.com. Visit my web site at www.mangunonmarkets.com. Follow me on Twitter @mangunonmarkets. PSE stock-market information and technical analysis tools provided by the COL Financial Group Inc.
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Read: Book Value vs Market Value