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Investment Dictionary

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Market Value


The meaning of market value depends on the context for which the term is applied. Generally, market value is a price at which the buyer would agree to buy and seller would agree to sell the object without any external pressure and distorting circumstances. The key thing here is that the price should satisfy both: the buyer and the seller, and such buyers and sellers should be available on the market, which can be sometimes problematic for very illiquid assets.


There are many methods to determine the market value for any kind of assets: relative valuation, DCF valuation and other methods. However, if market value is applied to securities that are listed (traded on stock exchange or other centralized market) then it is common to accept that the price on the stock exchange represents the market value of the security. But sometimes, especially if the stock price was manipulated on the market, it may not show the real market value of the security. 


The key thing is that the value and the price aren’t the same. Price (especially if this price is not determined by market) is only the amount of money of one deal which can be made at any price. For example, someone just sold a new BMW for a ridiculously low price, but maybe he needed the cash vary badly (or maybe the car was stolen), but this deal do not represents the market value of the car, because value will be much higher. This value may be significantly different from book value


As Oscar Wilde once said:  „Nowadays people know the price of everything and the value of nothing“.



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