How market prices shape investment analysis

Investment analysis is the process of determining the economic value of an asset, business, security, or liability. What shapes an investment's value, and how do market prices help us understand it? The lessons connect valuation to the way prices reflect comparisons, risk, and return.

2 articles, 1 book · about 24 min of reading and viewing

The reading path

1. Read
   investment analysis · Wikipedia · 21 min read

   Investment analysis can estimate a company's value by looking at its assets and liabilities. A solvent company could sell its assets, pay creditors, and use any remaining cash to establish a floor value. The guideline companies method values a firm by observing prices of similar companies that sold in the market. Those sales could be shares of stock or entire firms.

2. Read
   

   Value is not a 'risk premium' · Klement on Investing · 3 min read

   Investment analysis says equities should earn a risk premium to entice enough investors to buy them if they are riskier than houses. If the premium isn't high enough, prices have to drop until it is.

3. Book
   

   Flash Boys · Bookshop.org

   Flash Boys by Michael Lewis describes how people at different firms separately realize a problem, then band together to reform the financial markets.

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