The error in the value of companies with shares on the stock exchange

The error in the value of companies with shares on the stock exchange

According to commercial laws for the balance sheets of companies audited by independent auditors, the first thing that comes to mind is the value of the initial capital, which is estimated for insurance purposes and for classification in the commercial or financial category for tax classification purposes in the tax rate category.

The first placement of shares on the market, the IPO, is the first step towards the shift and sale between the equity value and the market value, which no longer has any accounting relationship, given that the price from then on depends solely on the expectations of investors or brokers who have no interest in dividends or the financial health of the company, living only from brokerage fees and the difference in premium between purchase and sale transactions and changes in the ultra-speculative, instantaneous and casual share position.

Stock exchanges should be closed by the courts, they are leveraged and overvalued and organized like a financial pyramid based solely on expectations about uncertainties, certainties destroy speculative bets and collapse reality as happens in the nano-cosmos of the world of quantum phenomenology.

There is a serious statistical error in the price of companies based on stock quotes on stock exchanges that consists of multiplying the price per share of the last trade by the total stock of all shares of that company whose lots were traded with very different values, therefore, without the due weighted average.

It turns out that if, for example, there is a total stock of 100 thousand shares of the company ACME on the market and in the last trading session of the stock exchange there was a lot of shares traded at the average of the day at the close of trading for a value of, say, 1 billion times 100 percent of the value of the company's share quote in the IPO, the new value of the company is immediately recalculated based on this value from the last trading session multiplied by the total number of existing shares of that company.

This statistical error creates a virtual fictional reality of the company's value, as if all shares could be traded based on the value of the small batch, certainly of shares traded that made the speculative leap due precisely to the scarcity of shares in view of the demand to buy from that auction that produced the billion-dollar jump and did not actually increase the value of all shares.

This inductive error is well used by sellers of the demonstration effect and ends up inflating the world of companies whose equity value is billionths of times lower than the new value estimated only with the sample of a small number of batches of shares extremely valued in the billion-dollar speculative auction.

The inductive error consists of knowing what is the probability of that overvalued sample being a validated sample for the entire population of shares of the company?

Roberto da Silva Rocha, professor universitário e cientista político