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  1. I was wondering what differences are between valuation and pricing of securities?

    To me, they seem identical and for identical purposes.

    If not, what is each of them trying to get from what is assumed given?

    How different are their methods?

  2. Are valuation and pricing what security analysis is all about?

Thanks!

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    Did you see an article or something that gave you the impression they were different? If so can you post it? – Kirill Fuchs Jun 22 '12 at 5:03
  • @KirillFuchs: I try to figure out the big picture. I am looking at table of content of some investment and financial market books (For example, Investements by Bodie and Foundations of financial markets and institutions by Fabozzi). I don't understand why valuation and pricing can appear in the same book. – Tim Jun 22 '12 at 11:24
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    Perhaps it is worth remembering Oscar Wilde's epigram that a cynic is someone who knows the price of everything and the value of nothing. While valuation is a perfectly well-defined activity though different analysts may come to slightly different conclusions as the value of a company, the price of the stock is also based to some extent on market conditions, investor euphoria or paranoia etc. Stock market transactions and share sales/purchases occur because two people have different views about the stock price; one person thinks the stock is over-valued, the other that it is under-valued. – Dilip Sarwate Jun 23 '12 at 19:14
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Pricing would just be another way to describe valuation. I guess if you want to get technical, pricing - is the act of getting somethings valuation. While valuation - is the estimate of somethings worth.

Security analysis -

An examination and evaluation of the various factors affecting the value of a security.

Side Note: While pricing is valuation, price is not. Price is how much the stock, or security costs most commonly determined by a market.

Add On: The meaning of two words might matter depending on what context it is being used in. For example if we were talking about a market where an individual actually sets a price at random without doing any type of evaluation then this->answer that AlexR provides would better highlight the differences.

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  • Thanks! (1) So "pricing = valuation"? (2) Is security analysis all about pricing/valuation of securities? If not, what else does security analysis include, which is not pricing/valuation? – Tim Jun 22 '12 at 11:26
  • Yes pricing = valuation. And yes security analysis is "getting the value of a security" I've added a link to the definition in my answer. – Kirill Fuchs Jun 22 '12 at 14:02
  • @tim It might matter depending on what context it is being used in. For example if we were talking about a market where an individual actually sets a price at random without doing any type of valuation then the answer AlexR provides would better highlight the differences. (added this to the answer as well) – Kirill Fuchs Jun 23 '12 at 17:22
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I would differentiate between pricing and valuation a bit more:

Valuation is the result of investment analysis and the result of coming up with a fair value for a company and its shares; this is done usually by equity analysts. I have never heard about pricing a security in this context. Pricing would indicate that the price of a product or security is "set" by someone (i.e. a car manufacturer sets the prices of its new cars). The price of a security however is not set by an analyst or an institution, it is solely set by the stock market (perhaps based on the valuations of different analysts).

There is only one exception to this: pricing an IPO before its shares are actually traded on an exchange. In this case the underwriting banks set the price (based on the valuation) at which the shares are distributed.

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  • In a free market a price cannot be set by anyone except the market, and even in your example regarding "the car manufacturer setting the price of its new cars", it is still coming up with that price through some sort of valuation (labor costs, competition, parts ect...). Pricing is just the act of getting that valuation in order to set the price. Valuation is just the noun, while pricing is the verb. – Kirill Fuchs Jun 23 '12 at 17:17

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