What's It Really Worth?

The headline read “What is Gold REALLY Worth? After reading the article, I still didn’t know. Probably because it’s a question without an absolute answer. What is anything REALLY worth? 

What is the intrinsic value of gold? Probably less than most people think. It makes nice jewelry because it doesn’t tarnish and is malleable. It conducts electricity well, so it has some value in electronics manufacturing, but what is it really worth? The answer is a question: What are you willing to pay for it?

How much is a piece of land worth? Does it have a particular intrinsic value? What’s the value of your home? Let’s say that you want your house to be worth $500,000. You place it on the market at that price. Months later, no one has even made an offer. You complain that no one is willing to give you what it’s worth. You have the equation reversed. It’s worth what someone else is willing to pay for it. Not one penny more.

How about stocks? What are they worth? This value equation is only a bit easier to determine, because stocks are ownership of a business. A business creates wealth by producing profits, so a stock is worth some multiple of the businesses profit or earnings. There is value in those earnings; the exact amount is open to negotiation. Is it five times those earnings or one hundred times? Like gold, real estate, or anything else, a share of stock is only worth what someone else is willing to pay for it. Period. 

Here’s a simple way to understand the process of defining worth:

Sellers can set prices, but only buyers determine value.

Don McDonaldComment