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What is the difference between Market Value and Present Value?
Market Value is the current value of a share or security in the market. It shows the price of a share at which it is sold and bought in the stock markets. Market value per share is considered to be higher than book value per share. Market value per share is given by the total market value of shares outstanding divided by the total number of shares.
Market value shows varying fluctuations in the daily market conditions and hence the trend of the share for the longer term is analyzed to determine the share's average price. When capital markets are working efficiently, the market value should be equal to present or intrinsic value.
The Intrinsic Value is the Net Present Value that is approximated inflation-adjusted, after-tax, discounted cash flows between now and to infinity. The Market Value is the price of shares buyers are willing to pay in the present.
Note − Market value and present value tend to become equal in case the market is normal or not having too many ups and downs.
Productive Assets with Intrinsic and Present Values
It is a given condition that you must look at what you are getting from the market if you have security in your hands. You must not be quick to sell them just at a minimum price rise because the intrinsic value might outplay the market values.
Most of the wealthy people got there by holding assets for more than 25 years on an average. So, holding the equities or market value offers returns on a longer period rather than what they offer in the case of net present value.
Keeping a Diversified Portfolio
In both the cases, net present value or market value, having a diversified portfolio helps in times of need. If you sell the good stocks just because they are performing badly in the short run, you have taken it wrong. It is a well-known fact that good stocks may go down unimaginably but they often bounce back with full force on a good day. So, holding the stocks with faith is the way to go in both cases.
Note − Both the net present value and the market value show similar trends when the market is stable. Taking a long route always helps in earning wealth from securities.
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