Relay-Version: version B 2.10 5/3/83; site utzoo.UUCP
Path: utzoo!linus!decvax!ittatc!dcdwest!sdcsvax!sdcrdcf!hplabs!qantel!lll-lcc!lll-crg!gymble!umcp-cs!seismo!uwvax!astroatc!nicmad!luscher
From: luscher@nicmad.UUCP
Newsgroups: net.invest
Subject: Re: Stock market is NOT a present value machine
Message-ID: <580@nicmad.UUCP>
Date: Wed, 19-Mar-86 18:46:39 EST
Article-I.D.: nicmad.580
Posted: Wed Mar 19 18:46:39 1986
Date-Received: Sun, 30-Mar-86 07:51:59 EST
References: <2023@uwmacc.UUCP> <4313@dartvax.UUCP> <2041@uwmacc.UUCP>
Reply-To: luscher@nicmad.UUCP (Jim {4thNIC} Luscher)
Distribution: net
Organization: Nicolet Instrument Corp. Madison WI
Lines: 24
Keywords: present value, NPV, stock prices

>Is every number published in the
>NYSE section of the WSJ the result of a numerical calculation of present
>value, based on reasoned and researched values of expected periodic payments
>and a discount rate based on solid research by knowledgeable investigators?

Of course not.  The 'present value' theory states how people would value
stocks if they had access to information that real people cannot possibly
know and if they were what a professor would call rational.  We all know
people aren't rational (except perhaps me ;-).  The numbers published
in the WSJ tell what 'willing sellers paid willing buyers yesterday'.
This obviously has little to do with present value.

>By the way, what's the "N" in the "NPV" mentioned in an earlier article?

The N is for Net.  The net present value is the sum of the incomes (discounted)
less the sum of the investments (discounted) necessary to produce those 
incomes.  Corporations are assumed to exist forever - therefore
your initial investment is never returned.  By the theory, when you buy
a stock you just purchase the value of the dividend stream.


-- 
Jim Luscher / Nicolet Instruments / Oscilloscope Div.
5225 Verona Rd Bldg-2 / Madison Wi 53711 USA / 608/271-3333x2274