Question

Could a security’s intrinsic value to an investor ever differ from the security’s
market value? If so, under what circumstances?

Answer 1

Yes, value of a securities in Market will be different from intrinsic value because-

A. Markets are futuristic in nature and they will be trying to discount the future earning of the company at times and that will lead to deviation from the intrinsic value.

B. Difference between intrinsic value and market value can also be attributed to sentiments of various investors and sentiments of the market participants that keeps on changing day to day

C. Stock market are dependent upon micro as well as macro factors so a change in the economic prospects will be also leading to change in the stock price and it will be different from the intrinsic value.

D. Change in the market price can also be attributed to any extreme events like Black swan event which will be leading to change in the stock price to a large extent and that will be not in line with the intrinsic value of the stock.

So, it can be summarised that stock market will run upon its own sentiments and fundamental so they will be affecting the price of the share to a large extent as the price will be decided after interaction of various market participants whereas intrinsic value of share is not as flexible as share market opinions and sentiments.