Why value value?–defending against crises – McKinsey Quarterly – Corporate Finance – Valuation


 

Economics

Economics (Photo credit: markwainwright)

Market bubbles and crashes are painfully disruptive, but we don’t need to rewrite the rules of competition and finance to understand and avoid them. Certainly the Internet has changed the way we shop and communicate. But it has not created a “New Economy,” as the 1990s catchphrase went. On the contrary, it has made information, especially about prices, transparent in a way that intensifies old-style market competition in many real markets. Similarly, the financial crisis triggered in 2007 will wring out some of the economy’s recent excesses, such as people buying houses they can’t afford and uncontrolled credit-card borrowing by consumers. But the key to avoiding the next crisis is to reassert the fundamental economic rules, not to revise them. If investors and lenders value their investments and loans according to the guiding principle of value creation and its corollary, prices for both kinds of assets will reflect the real risks underlying the transactions.

 

Why value value?–defending against crises – McKinsey Quarterly – Corporate Finance – Valuation

 

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