I just reviewed my notes on investing and realize that many people still don’t fully understand how a stock’s value is calculated. It’s one of those concepts that seems simple but constantly causes confusion.

Look, the market value of a stock is basically what the market says it’s worth at any given moment. It’s not magic, it’s supply and demand. Period. If more people want to buy than sell, it goes up. If the opposite happens, it goes down. As simple as that. The price you see on your broker is exactly that: the consensus between buyers and sellers.

But here’s where it gets interesting. Many think they can set any price they want. Technically yes, but if you set an ABC stock at 34 euros when the market values it at 16, no one will buy it. That’s how blunt it is. You need a counterparty, someone willing to make the deal at that price. Otherwise, your order just stays there, waiting.

This leads me to a critical point that almost no one considers: liquidity. I’ve seen stocks rise spectacularly but when you try to sell, you realize no one is buying. It’s a serious problem. The trading volume tells you whether you can really enter and exit whenever you want or if you’ll get trapped. Stocks like BBVA have immediate liquidity. Others, hardly. When working with less common assets, private equity, or unlisted debt, the surprise can be unpleasant.

Now, how to calculate a stock’s value from a mathematical perspective is more straightforward. If you know the market capitalization (the total value the market assigns to the company), divide it by the number of shares outstanding, and that’s it. The result is the price per share. Your broker shows it to you automatically, so you don’t have to do the math. But it’s useful to understand what’s behind it.

There’s something worth clarifying: there’s a difference between market value, nominal value, and book value. Nominal is the initial issuance price. Book value reflects what the company’s balance sheet states. Market value is what people are actually paying today. They often don’t match. Value investors look precisely for that: companies where the book value is above the market value, betting that over time, the market will revalue them.

Here’s my personal reflection: market value is tremendously inefficient. It doesn’t necessarily reflect what a company is truly worth. I remember the case of Terra in Spain, which launched at 11.81 euros and in less than a year reached 157.60. Pure internet hype, with no real justification. Then it disappeared. The same happened with Gowex, which turned out to be a monumental scam. The market is driven by emotions and narratives.

But here’s the paradox: even though it’s inefficient, it’s the only reference we have. It’s the price at which you can actually operate. That’s why it’s so important to understand how it works, how the value of a stock is calculated in real time, and especially, to respect liquidity.

My advice: always work with assets that have respectable trading volume. Don’t fall into liquidity traps. The price you see is what there is, and if you need to exit, that’s the price you’ll get. No exceptions.