Investing

The term "investment value" refers to the concept of pure, true, intrinsic, economic value. The phrase "expected investment value" refers to investment value adjusted for risk and uncertainty. Economic valuation is the estimation of economic value.Even with all these qualifying adjectives to clarify the meaning, the phrase is awkward and remains ambiguous. A less ambiguous distinction is between deep value and surface value. Deep value is investment value based primarily on intrinsic economic value estimated from expected future discounted cash flows and buttressed by accounting book value, quality and other aspects of value independent of market price. Deep intrinsic value can include qualitative factors such as brand recognition, franchise, corporate governance, labor relations, government contracts and assets that are not usually marked to market. A corporate governance score such as Standard & Poor's CGS [PDF or HTML] use criteria that may be indicators of long-term value creation, including both a Corporate Governance Score for a company and a separate Country Governance Classification for its country of origin. The criteria are fairness, transparency, accountability and responsibility, as elaborated in Standard & Poor's Corporate Governance Scores: Criteria, Methodology and Definitions, July, 2002. Surface value is a misnomer -- it is not really value but rather market price, usually expressed as a ratio either with accounting items such as earnings, dividends, net worth, and sales, or with growth rate. Surface value is analogous to unit pricing of fungible commodities by number, by volume, and by weight, for comparison shopping without regard to quality.

The quantity of value is an estimate or approximation. The estimated quantity of value is based on an appraisal or a valuation. It can be expressed either as an interval estimate or a range of quantitative values, or as a single-point estimate or a single quantity of varying precision. Either way, intrinsic value can be quantified as Net Present Value (NPV) based on Discounted Cash Flow (DCF) analysis.Price is not value, neither in concept nor in quantity. Price is a market-generated quantity. The confusing term "market value" is really market price. The confusing term "fair market value" is really fair market price. The fair market price is the price that equals the single quantity that best approximates investment value. The best point estimate of investment value is the mean of the distribution of values rather than the median of the distribution of values or the midpoint of the range of values.The distinction between human values and economic value is discussed in Investing with Your Values: Making Money and Making a Difference by Hal Brill, Jack Brill, and Cliff Feigenbaum (see citation in General Books). Whereas, the market is an effective mechanism for translating human values into the common metric of price, a valuation model is an effective method for estimating economic value.

In addition, the phrase "intrinsic value" is not to be confused with its use in a philosophic sense where the intrinsic value of something is said to be the value that it has “in itself,” or “for its own sake,” or “as such,” or “in its own right,” and extrinsic value is value that is not intrinsic [Zimmerman, Michael J., "Intrinsic vs. Extrinsic Value", The Stanford Encyclopedia of Philosophy (Fall 2003 Edition), Edward N. Zalta (ed.),

Another term that is used to refer to economic value is "fundamental value", which derives the quantity of value from so-called fundamental economic metrics generated by a firm at the firm-level, in contrast to pricing metrics generated by a securities market at the security-level.

Markets often fail due to externalities. An externality is either a cost (negative externality) or a benefit (positive externality) that is not explicitly included in a price. In product markets, there are both production externalities and consumption externalities. An example of a positive production externality is company basic research that leads to discoveries with spillover effects beyond its commercial interests and beyond all commercial interests. An example of a negative consumption externality is the non-recycled waste of a non-renewable natural resource. Remedies for these product market imperfections or flaws are presented in The Ecology of Commerce by Paul Hawken (see citation in General Books). The reason why Earth is facing a man-made ecological crisis is presented in Ishmael by Daniel Quinn, and the complementary reason how we got to this crisis is explained in Guns, Germs, and Steel : The Fates of Human Societies by Jared Diamond (see citations in General Books). Market externalities often are a result of open-access systems known as commons that are discussed in Managing the Commons edited by Garrett Hardin and John Baden (see citation in General Books). Some companies and industries face a larger potential adjustment between their product prices and full product costs. Pricing externalities in product markets have a direct but uncertain impact on company valuations and an indirect impact on prices in capital markets.