During the last 30 days, the fund held 13.52375 shares (original investment of $2,500) and sold them on 01/17/2020 at 9:40 AM when the price in the market hit the target under the value investment principle at $207.17. The value investing principle (simply stated) required the share price to hit the prior peak price which was $206.46. However, on that morning, the share price instantly jumped past $206.46 to $207.17 triggering the sale of the stock. The gain on the sale net of costs of $1.00 per share to buy and $1.00 per share to sell was $288.19. The stock was purchased on 10/23/19 at $183.86.
Fair Market Value
Fair market value (FMV) is the price a reasonable person with all the pertinent knowledge would pay for a particular product/service or ownership rights of a business. Fair market value is commonly used in the real estate industry, but it is much broader. Anytime there are many buyers for a product, the buyers set the fair market value. Limited buyers for a product creates questionable value.
Value investing is a concept of buying and selling stocks based on business fundamentals and not as a reaction to news or market trends. It is a well accepted principle that often the market overreacts to news causing stocks to plummet in price or escalate in value. Value investors ignore this and use sound business fundamentals to trade stock. Much of historical wealth accumulation is based in value investments. There are no short-cuts or sudden actions taken by value investors. All decisions are derived by business analytics and trend lines.
There are several business financial attributes required for EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) to work well as a basis for the multiple of earnings method (the method used with the Market Comparable Valuation Approach); see Fair Market Value for a better understanding of the three primary business valuation approaches.
This article will illustrate the opposite effect using the same business information. A buyer of a business should be leery of financial information and look for improper accounting processes. The goal is to reduce the operational income and ultimately the value of the business. The goal is to get the business valuation to a realistic number.