Fair value is not the same as market price

The belief that the only measure of value is what someone is willing to pay is wrong.

The fundamental value of an asset is derived from the cash or earnings or utility the asset generates. Prices can deviate from fundamental value because future cash or earnings or utility are uncertain, or because of momentum - the belief that overvalued or undervalued assets may become yet more overvalued or undervalued. But there are few cases where prices are forever divorced from fundamental values - that was the lesson of tulips, dotcom stocks and collateralised debt obligations ... READ MORE

Released by the Financial Times - 16 April 2013