Investor's Guide to Stock Purchase

A

Book value has little relevance to purchasing decisions. A company that is expected to perform well may have a stock that is overvalued because of the very positive attention surrounding it. Instead, an investor should purchase a stock if its estimated value is greater than its market value. This implies that the market is undervaluing the stock, the investor can buy it for less than it is worth, and receive excess returns as the market eventually realizes its mistake.