Market Price is not Market Value: Investors need to understand this difference

2025-12-25 03:15:34

Many people confuse Market Price (Market Price) with Market Value (Market Value), thinking they are the same thing. But in reality, these two terms have very different meanings, and understanding this difference will greatly improve your investment decisions.

Essential Meanings to Know

Market Price (Market Price) is the price resulting from the bargaining between buyers and sellers over a certain period. If the buying side is larger, the price goes up; if the selling side dominates, the price drops. This type of price changes every second, every minute, depending on market sentiment.

Market Value (Market Value) is another matter. It is an estimate of how much the company is truly worth based on current conditions, calculated with the formula:

Market Value = Current Share Price × Total Outstanding Shares

For example, if Company AAA has 300 million shares outstanding and the current share price is 1.50 baht, then AAA’s Market Value is 450 million baht.

Market Price Changes Every Moment, But Market Value Is More Stable

The most important difference is timeframe. Market Price never stops fluctuating, moving up and down according to the market’s pull-back and push-up game. For example, Apple bought at 150 dollars in the morning might be 148 dollars in the afternoon.

However, Market Value is more stable. Investors use it for long-term analysis, asking themselves: “How much is this company really worth?” over the next 1-3 years, not just today or tomorrow.

Who Cares About Which?

Short-term traders (Day Traders) focus on Market Price all day long, trying to buy low and sell high for quick profits.

Long-term investors (Value Investors) stay calm and look more at Market Value. They ask themselves: “Is this stock expensive or cheap?” “Based on its true value, am I getting a good price?”

Factors That Affect Market Value Changes

Although Market Value is more stable, it’s not static. These factors can change it:

Company Performance - Better profits and increased sales raise Market Value.
Economic Conditions - A strong economy means more consumer spending, leading to higher sales.
Confidence and Leadership - Visionary management boosts investor confidence about the future.
Product and Service Quality - Higher customer satisfaction increases sales.
Debt-Repayment Ability - Sufficient cash flow and low debt make investors more confident.

How Many Forms Does Market Value Take?

Type 1: Company Market Value

Used for companies listed on the stock exchange, calculated as: Total Outstanding Shares × Closing Price. This figure indicates “how much the market values this company in baht.”

Type 2: Asset Market Value

For assets not traded on the stock exchange, such as real estate or other rights, valuation methods are used. Usually, expert appraisals are needed to approximate true value.

Market Cap Is Also Relevant

Market Capitalization (Market Capitalization at Market Price) or simply Market Cap is the total value of all outstanding shares of a company. This number shows how much the market thinks the entire company is worth.

For example, Apple Inc. at the end of 2023 had a Market Cap of up to 3 trillion US dollars. This figure indicates the size and potential of the company.

Market Value vs. Book Value: Parent and Child

Book Value (Book Value) is the net asset value, calculated as:

Book Value = Total Assets - Total Liabilities

For example, if Company BBB has assets worth 500 million and liabilities of 250 million, then Book Value = 250 million baht. This number indicates how much shareholders would get if the company liquidated and sold all assets to pay off debts.

Market Value, on the other hand, is based on market opinion and future outlook. Sometimes, Market Value exceeds Book Value significantly because the market perceives future growth potential.

Summary:

Market Value: Quick to adjust, reflects market conditions, used by investors to assess opportunities.
Book Value: Rough estimate from accounting documents, used to evaluate risk.

Disadvantages of Relying Solely on Market Value

It Fluctuates with Market Cycles - Stock prices change, and Market Value follows, sometimes moving independently of the company’s actual performance.
It Doesn’t Cover Everything - Market Value is based on stock prices but may miss key details like actual net profit, cost structure, or management quality.
Some Companies Are Missing - Companies not listed on the stock exchange lack an easy way to estimate Market Value.
Market Is Not Always Balanced - Sometimes, the market is overly optimistic or pessimistic. For example, during the dot-com bubble, prices soared far beyond intrinsic values.

Key for Investors

When analyzing securities using Market Value, combine it with other indicators like P/E ratio, ROE, or personal intuition about the company. Don’t rely solely on one number.

Market Value shows how the market perceives the company, but the investor’s role is to “think differently” and “think deeper” at all times.

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