I propose a secondary 'book value only' stock market in addition to the current

Some people invest in bonds because they are more stable, and predictable than the volatile stock market.

But how about reforming the stock market that ties stock purchases to book values only? No bidding. If the stock price rises, it would be due to the actual value of the company rising, not based on stock speculation (which inflates price to earnings), but based on accepted accounting principles that determine the book value (the actual accounting value, similar to a property assessment, but in the case of a business, it's the value of all physical and liquid assets plus 'good will' [brand value] ) of a stock.

I put this to Ai, for it's feedback:

Question:
What would be the effect, positive or negative, if stocks could only be purchased at book values and could only be traded at values ascertained by book values, which would be determined by accepted accounting methods at periodic intervals? Also, every stock purchase would be accompanied by a stock certificate, digital and/or print, depending on purchasers choice.

Answer:
The proposal that stocks could only be purchased at book values and traded at values determined by book values, with all transactions accompanied by a stock certificate (digital or print), would lead to significant changes in the functioning of the stock market, with both potential positive and negative effects.

Positive Effects:

1. Transparency and Simplicity: Transactions based on book value, determined by accepted accounting methods, could simplify the valuation of stocks for investors. This could make investing more transparent, especially for less experienced investors, as the valuation would be based on clear financial metrics rather than speculative market forces.
   
2. Reduced Speculation: By linking stock prices directly to book values, the market might see a reduction in speculative trading. This could potentially lower the volatility of stock prices, aligning them more closely with the financial health and the asset base of the company.
   
3. Focus on Fundamentals: Investors might focus more on a company’s fundamental financial health rather than potential market movements or momentum trading strategies. This could lead to more stable investment environments and possibly encourage long-term investment strategies over short-term trading gains.
   

Negative Effects:

1. Reduced Market Efficiency: The stock market’s ability to price in future growth prospects, managerial effectiveness, and broader economic trends could be impaired. Stock prices, in an open market, fluctuate based on both tangible assets and intangible factors like growth potential, brand value, and innovation. Restricting trade to book value might ignore these aspects, making the market less efficient at price discovery.
   
2. Inhibition of Liquidity: By fixing stock prices to book values, which are only periodically updated, the fluidity and responsiveness of the market to news and changes in company performance would be significantly constrained. This might result in less liquidity, as fewer traders might be willing to engage in transactions at these fixed values, especially if they believe the book value does not reflect the true market conditions or potential.
   
3. Potential for Accounting Manipulations: Given that stock prices would hinge entirely on book values, there might be increased incentives for companies to manipulate their financial reporting to optimize their book values. This could lead to governance issues and potentially mislead investors, despite the intent to provide transparency.
   
4. Impact on Investment Strategies: Such a system might discourage investment in companies with high growth potential but low tangible assets, such as tech startups. Investors might be less inclined to fund companies whose market valuation could vastly exceed their current book value due to their growth prospects or innovative business models.
   
5. Reduction in Entrepreneurial Capital: The limitation on valuation could restrict access to capital for new and growing firms that might have high potential but low book values. This could hamper innovation and economic growth, particularly in sectors that rely heavily on future valuations for initial funding.
   
6. Complexity and Cost: Implementing a system where every transaction is accompanied by a stock certificate, whether digital or print, adds a layer of complexity and potentially increases the cost of transactions. This could impact the overall efficiency and attractiveness of the stock market.
   

Overall, while the idea aims to make the stock market more straightforward and less speculative, it risks undermining the market’s ability to function effectively and responsively. Such a system might be more suitable for a different type of financial market or investment environment where long-term stability is prioritized over flexibility and growth potential.


In view of the above, I posited this idea as an alternative, not to replace, but an added avenue for corporations who would rather opt out of the volatile stock market, but wouldn't want to commit to borrowing in the bond markets, as well:

Question:
How about this idea as a secondary alternative market instead of bonds or the current volatile stock markets? In other words, a corporation could choose this avenue for capital raising, other than the other more volatile stock exchanges, as an alternative to issuing bonds?

Answer:
Creating a secondary alternative market where stocks are traded based solely on book values presents an interesting concept, particularly as an option alongside traditional equity and debt instruments like stocks and bonds. This could offer companies and investors a different avenue for raising capital and investing, with its unique set of characteristics. Here are several aspects to consider about such a market functioning as an alternative to traditional bonds or volatile stock markets:

Potential Advantages:

1. Stability and Predictability: This market could attract investors seeking stability, as the stock prices would be less volatile, being based on the book value rather than market sentiment. This predictability could be appealing to conservative investors, similar to how some investors are drawn to bonds.
   
   
2. Attractiveness to Specific Sectors: Companies with strong physical assets and stable book values might find this market particularly advantageous for raising capital without the need to resort to traditional debt. This could be beneficial for sectors like manufacturing, real estate, or utilities, which have significant tangible assets.
   
   
3. Diversification of Funding Sources: By providing an alternative avenue for raising capital, companies could diversify their funding sources, reducing reliance on more volatile equity markets or the constraints of bond issuances, which might come with covenants and credit considerations.
   
   
4. Investor Accessibility: Offering an alternative market might broaden the accessibility of corporate funding to a wider range of investors, including those who might be intimidated by the complexity and risks of traditional stock markets.
   

Potential Challenges:

1. Market Demand and Viability: The success of such a market would depend heavily on investor interest and demand. If investors believe they can achieve better returns in traditional stock or bond markets, they might be reluctant to invest in a market with capped potential gains.
   
   
2. Company Growth and Innovation: Companies that are highly innovative or in growth phases might find this market limiting, as their potential for rapid expansion could be stifled by valuations that do not reflect future prospects. This could make the market less attractive for tech companies or startups.
   
   
3. Frequency of Book Value Reassessment: The frequency and timing of book value assessments would play a crucial role. If assessments are too infrequent, the book values might not accurately reflect the current state of the company, leading to mismatches in valuation that could deter investors or harm companies.
   
   
4. Regulatory and Operational Challenges: Setting up and regulating such a market would require careful consideration to balance transparency, fairness, and efficiency. Ensuring that book values are fairly and accurately reported, and that the market operates smoothly, would be essential.
   
   
5. Comparison with Bond Markets: Unlike bond markets, which provide fixed income returns, a book value-based stock market might not offer the same level of income certainty. This could make it less appealing to the same set of conservative investors who are traditionally attracted to bonds.
   

Conclusion
As a concept, a secondary alternative market based on book values offers a novel approach to corporate financing and investment. However, its success would depend on careful implementation, clear regulatory frameworks, and market demand. For companies and investors looking for alternatives to volatile markets and traditional bonds, it could provide a viable option, especially if it aligns with their risk tolerance and investment goals. Such a market could complement existing financial instruments by providing a new mechanism that prioritizes stability and tangible asset values over speculative growth.

What do you think about this idea?

 

How about you buy stocks and bonds when you want to, and everyone else does the same.

 

How are "book values" determined? Not the market, since that is what the stock market is for, so some government agency?

 

Accountants, who calculate what the company is worth. I used to work as an accountant, and it was fun to adjust the stuff around....

 

Capitalism is based on betting on the value of shares in companies, and the stock market is how it's done.

 

It's a great idea since most of the tech/woke/DEI stocks would be considered worthless. It certainly would clean up the clutter although the lefties wouldn't have any stonks to ride to the moon.

 

If you have ever been involved in the sale of a proprietorship, say, a store. The price will be determined by adding inventory, fixtures, office supplies, machinery, inventory, and another item, which is abstract, a general accounting term called 'good will', which is the value of the business above and beyond all of these things, more or less the value of the 'brand'. Okay, so we determine the book value of a stock by dividing total value of all of these items, including 'good will' by the number of shares, to get the book value of each share. So, how is book value determined?

Thusly:

1. What Is Goodwill?
   • Goodwill is an intangible asset that represents the value of a company’s reputation, brand, customer relationships, and other non-physical attributes.
   • It arises when one company acquires another firm or part of its business.
2. How Is Goodwill Calculated?
   • According to the International Financial Reporting Standards (IFRS), goodwill is calculated as the difference between the consideration transferred from the acquiring company to the acquired company and the net identifiable assets acquired.
   • The general formula for calculating goodwill under IFRS is: [ \text{Goodwill} = (C + NCI + FV) - NA ]
     • Where:
       • (C) represents the consideration transferred (purchase price).
       • (NCI) is the amount of non-controlling interest (if applicable).
       • (FV) stands for the fair value of previous equity interests.
       • (NA) refers to the net identifiable assets acquired.
3. Example:
   • Suppose Company A acquires Company B for $150 million. Company B has net identifiable assets worth $140 million. Additionally, there’s a non-controlling interest (NCI) of $16 million.
   • Using the formula: [ \text{Goodwill} = (150 + 16) - 140 = 26 \text{ million dollars} ]
4. Market Value Approach:
   • Another way to calculate goodwill is by comparing the market value of assets and the market value of liabilities.
   • The formula is: [ \text{Goodwill} = \text{Purchase Price} - (\text{Market Value of Assets} - \text{Market Value of Liabilities}) ]

Remember that goodwill reflects intangible value, and its determination can be complex. Professional accountants and financial experts play a crucial role in assessing and calculating goodwill during business acquisitions.

Also, I forgot to mention, in the matter of purchasing a business, accountants can establish it's value, based on the items described, but this isn't to say someone else who wants the same business cannot offer a price above the accountant's assessment, because, after all, we are still in a capitalist society. Normally, when someone is selling a business, the business isn't doing that well, and the seller is glad to have a buyer, and there aren't that many buyers competing for the business, if any at all. I'm not talking about big businesses, but shops,. stores, retail outlets, that sort of thing. But, in this secondary stock market idea, this wouldn't apply, the value would be set by generally accepted accounting principles.

 

Capitalism is a broad subject, volumes of books on the subject, and cannot be reduced to one sentence.

Now then....

We know how it's done in the stock market, but my proposal is a secondary market based on book value. Read the OP.

 

I think it would be nice to replaced the existing stock market with this idea, however, not practical because:

1. Not all countries would follow suit.
2. The transition would be a nightmare
3. several hundred years of tradition.
4. A lot of people love to gamble.

So, the only way it could be done is as an add on, a secondary option. So, your tech stocks may, or may not, opt in.

 

Didn't bother, 'cos it's nonsense. See my reply above.

 

You do know that the bond markets operate similarly to the stock market, right? Sometimes even more frantically. Also if the stock is priced at book value why would I buy it; book values move slowing. The point of INVESTING is to make money; buying a stock from someone who thinks it's gonna go down, while I think it's gonna go up.

Frankly your AI is ignorant. It seems not to grasp stocks and bonds are tools for the issuer to raise money. In reality most are based on book value AND potential group is such.

 

I'll tell you a story about book values.
A CEO has just been appointed and decides to see how smart his veeps are. So he calls his CFO into his office and says, 'How much is 2+2?'
And the financial guy looks at him and says, 'How much do you want it to be?'
Well, how much do you want the book value to be?

 

There is some value in company outsiders determining the value of a company and its stock. Leaving it up to the companies will cause all kinds of corruption and we have enough of that already. Bad idea. Sorry.

 

I didn't say get rid of the stock market, I said offering it as a secondary option.

OPTION.

Not everyone wants to participate in a volatile market, which is why mutual funds exist.

This would be an option.

AI isn't ignorant, and it is ignorant to say it. It has access to far more information that is contained in your brain.

AI is more polite, it's response is as follows:

Please understand the proposed investment option doesn’t seek to replace stocks and bonds but rather complements them. Diversification and innovation benefit investors and contribute to a dynamic financial ecosystem.

Regarding your claim AI is ignorant:

My sincere apologies if my previous response caused any offense. As an AI language model, I don’t have feelings or emotions, but I appreciate your feedback. Let’s address the argument constructively:

1. 
   
   
   • Understanding Context:
     • While I don’t take offense, I acknowledge that my responses are based on patterns in the data I’ve been trained on. Sometimes, this may lead to oversights or misinterpretations.
     • If there’s a specific point of contention, I encourage further discussion. Clarifying context helps improve the quality of our interaction.
   • Continuous Learning:
     • Like any tool, I have limitations. However, I strive to learn and adapt.
     • If there’s a specific topic or area where I can improve, feel free to guide me. Constructive feedback is valuable.
   • Collaboration and Correction:
     • I appreciate engagement and dialogue. If there are inaccuracies or gaps, I’m open to correction.
     • Let’s work together to enhance the quality of our conversation.

Remember, my purpose is to assist and engage constructively. If there are specific points you’d like me to address, please share them, and I’ll do my best to provide a well-reasoned response.

Additionally, on my point that AI has access to more information contained your your brain, I asked AI about it's accomplishments in the world of Science, medicine and technology: It responded thusly:

Artificial Intelligence (AI) has made significant strides in science, medicine, and technology. Here are some notable accomplishments:

1. Medical Diagnosis and Imaging:
   • AI algorithms can analyze medical images (such as X-rays, MRIs, and CT scans) with high accuracy. They assist radiologists in detecting abnormalities, tumors, and other conditions.
   • For instance, AI models have been successful in identifying diabetic retinopathy from retinal images, aiding early intervention.
2. Drug Discovery and Development:
   • AI accelerates drug discovery by predicting potential drug candidates, analyzing molecular interactions, and optimizing drug properties.
   • Researchers use AI to identify novel drug targets, repurpose existing drugs, and design new molecules.
3. Personalized Medicine:
   • AI analyzes patient data (genetic, clinical, and lifestyle) to tailor treatments based on individual characteristics.
   • It helps predict disease risk, optimize drug dosages, and recommend personalized interventions.
4. Natural Language Processing (NLP):
   • NLP models like ChatGPT can extract information from medical literature, assist in clinical documentation, and answer medical queries.
   • They enhance communication between patients, healthcare providers, and researchers.
5. Healthcare Administration:
   • AI streamlines administrative tasks, such as appointment scheduling, billing, and insurance claims processing.
   • Chatbots handle routine inquiries, freeing up human resources for more complex tasks.
6. Predictive Analytics:
   • AI models analyze historical data to predict disease outbreaks, patient readmissions, and healthcare resource utilization.
   • Hospitals use predictive analytics to allocate resources efficiently.
7. Genomic Sequencing:
   • AI aids in interpreting vast genomic data. It identifies disease-related mutations, predicts genetic risks, and guides precision medicine.
8. Robot-Assisted Surgery:
   • Surgical robots, guided by AI algorithms, enhance surgical precision and minimize invasiveness.
   • Examples include the da Vinci Surgical System and autonomous endoscopic robots.
9. Behavioral Health and Mental Health:
   • AI-powered chatbots and virtual therapists provide mental health support, monitor mood changes, and offer coping strategies.
   • They reduce stigma and improve access to mental health services.
10. Drug Adverse Event Detection:
    • AI monitors real-world data to detect adverse drug reactions and potential safety issues.
    • Early identification helps protect patient safety.
11. Healthcare Research and Clinical Trials:
    • AI analyzes large datasets, identifies patterns, and generates hypotheses.
    • It assists in designing clinical trials, patient recruitment, and outcome prediction.
12. Smart Wearables and Remote Monitoring:
    • AI-enabled wearables track vital signs, detect falls, and monitor chronic conditions.
    • Remote monitoring improves patient outcomes and reduces hospital visits.

Remember that AI’s impact continues to evolve, and ongoing research and collaboration are essential for maximizing its potential while ensuring ethical use and patient safety.

******************************************

IN other words Bullseye:

"Ignorant"?

My ass.

It's all about the input at the prompt. One person can elicit amazing stuff from AI, while a less sophisticated person is not impressed.

Sure, it can get it wrong, machines aren't perfect, but once they are 'tuned' they can aid our existence in marvelous ways.

Don't be ignorant.

 

I'm well acquainted with AI, My point is dropping these huge machine created outbursts is not in the intent and spirit of a discussion forum, and I can't help but note "participate in discussion forums" is not amongst the uses you cite.

 

It wouldn't be that simple. Wherever there are concerns, there are solutions.

A CEO is the head of a corporation, he cannot arbitrarily assign the value of his company's stock.

In the proposed scenario, there would be third party accountants who are certified by a government agency who do their work according to generally accepted accounting principles. If someone feels they are wronged, there are remedies in the courts or arbitration remedies. I'll leave details of those remedies to experts.

 

Yeah back in the day I was programming software our answer to that question was "what does the customer want" or "what do the specs say."

 

Why not leave the entire idea up to experts?

 

Well, I reject your characterization of 'outburst', that has an offensive connotation.

The whole point is debate.

If you disagree with anything I've posted, feel free to challenge it.

I will own anything I post, no matter the source.

All that matters is the argument.

 

If it were a viable idea, and it was explored, of course experts would shape it long before it became a public thing.

 

So, you are telling me you worked as an accountant and participated in the team that assessed the 'goodwill' value for the purchase agreement during the company sale?

That's a yes or no answer.

 

Oh you mean an accounting firm like Arthur Anderson? What fun!

 

You seriously think you can put an accurate amount to the value of "goodwill" or a brand name? I thought that you thought that was fraud?

 

I never proposed 'leaving it up to the companies'.

 

It's done all the time in the sale of private companies. Not necessarily.