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Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell t
by kwamenum86 16y ago
Value is determined by what someone- anyone- will pay for something. And it makes sense if you think about it. The goal is to find out how much you can sell that something for and it is the exact same problem as figuring out how much someone will pay for that something.
Company valuations are messier than tulip bulb valuations though. With tulip bulb valuations you are saying that since someone will pay x the bulb is valued at x. With company valuations you are saying that since someone will buy 1/n of the company for x then the company is worth n*x. This makes sense because people really want a piece of facebook and valuations do a great job of setting that price. But the price is also used to determine how much the entire company will go for, which is how the number is often thought of.
As long as the valuation goes up and you have the opportunity to sell for a net gain then it is a good investment. DHH's thoughts here are important beacause they call attention to a valuation bubble. I think the main controversy lies in his creative use of words.
- JabavuAdams 16y agoValue is determined by what someone- anyone- will pay for something. This is unexamined Econ 101 dogma. See the other posts on intrinsic value.
- kwamenum86 16y agoI say this coming from a practical point of view though. If I can sell something today for at most 15 bucks, that is how much it is worth, no?
- bad_user 16y ago> Value is determined by what someone- anyone- will pay for something. Not "someone", but THE MARKET ... when you buy a piece of Facebook, but won't be able to sell at least at the same price, then you're the loser ;) When multiple losers gather and start buying stupid shit with no value to THE MARKET, that's called a BUBBLE, that will burst sooner or later. The trick for estimating if "the valuation goes up" is to see if that company actually provides value (i.e. actual profits, since that's the only goal of a company) ... and in that light, DHH's opinion makes a lot of sense.
- kwamenum86 16y agoI dont disagree with anything you or dhh said although I don't know for sure if his predictions will hold.
- TWAndrews 16y agoRight. But unless you think there's someone (or a set of someones) who would pay 33B for all of Facebook, it's not unreasonable to assert that it's not worth that much.
- kwamenum86 16y agoAgreed. We are valuing the whole pie based on the cost of a slice, which is problematic for many reasons...
- rob08 16y agoActually, in my mind price is what anyone will pay for something - the value may not be the same as the price