Thanks for looking into my post.

I am new to the stock investment.

According to Benjamin Graham, He suggested investors to purchase a stock 1.5 times the current book value.

Current Microsoft book values is 15$

If I multiply by 1.5 then I'll get 22.5$ but the stock is almost 194$

How to decide value of the stock?


2 Answers 2


Book value does not work for tech companies like microsoft. The world has changed since Benjamin Graham. In his time, it was all industrial.

Microsoft does a lot of R&D and has a ton of patents. They are not in the book value. Their source code is not in the book value. Book values for all tech companies are quite skewed - even for companies like Intel that operate large very expensive chip factories because they also do not show part of their value.

On Genjamin Graham's times companies were industrial and very little value was on intellectual property. ALSO: stocks where a lot cheaper.

Generally Tech companies are more valued by cash flow and earnings potential (current year, next year projected earning) and not by book value.

  • Thanks @TomTom How to decide whether market price is correct or not? Is $194 worth to buy or not?
    – Test
    Jun 22, 2020 at 15:31
  • 1
    Different question and one that many people wonder about. Right now I would say the stock market in the US is totally overvalued pretty much EVERYWHERE. As is real estate.Not touching any of those with a pole. For investment, that is - trading is different.
    – TomTom
    Jun 22, 2020 at 15:40
  • I don't really see how that is a different question, given this one says "How to decide value of the stock?" Jun 22, 2020 at 16:09
  • Because there is a move from "value" to "should i buy". One is i.e. economical mathematics, the other is regulated investment advice.
    – TomTom
    Jun 22, 2020 at 16:11
  • I don't see a big distinction particularly in the context of "I am new to stock investment", but if there is really a new question to ask I think the OP should explicitly contrast the two and refer to this one (and not talk about book value at all in the new one). Jun 22, 2020 at 16:44

Welcome to stock investing.

There is no "correct" market value of a stock, just the price it's been trading at lately. There are many theories of valuation, but the price is the price.

There is no universally agreed upon formula to determine if a price is "correct".

There are some accounting identities such as "book value" that may have "value" in the name, but these should not be confused with value in the intuitive sense.


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