Financial Reasoning vs Business Reasoning

We have here the point that brings home strikingly perhaps than any other the widened rift between financial thought and ordinary business thought. It is an almost unbelievable fact that Wall Street never asks, "How much is the business is selling for ?" Yet this should be the first question in considering a stock purchase.

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If a business man were offered a 5% interest in some concern for $10,000, his first mental process would be to multiply the asked priceby 20 and thus establish a proposed value of $200,000 for the entire undertaking. The rest of his calculation would turn about the question whether or not the business was a "good buy" at $200,000.

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This elementary and indispensable approach has been practically abandoned by those who purchase stocks.

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Recomendation.

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These examples, extreme as they are, suggest rather forcibly that the book value deserves at least a fleeting glance by the public before it buys or sells shares in a business undertaking. In any particular case the message that the book value conveys may well prove to be inconsequential and unworthy of attention.

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But this testimony should be examined before it is rejected. Let the stock buyer, if he lay any claim to intelligence, at least be able to tell himself, first, what value he is actually setting on the business and, second, what he is actually getting for his money in terms of tangible resources.

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