I have been thinking a lot about this lately. Market value is one of those concepts that we all believe we understand, but when we scratch beneath the surface, we realize that reality is much more complex than it seems. Basically, market value is what the market says a stock is worth at any given moment, nothing more and nothing less. It sounds simple, but here’s the trick: that price results from the meeting between those who want to buy and those who want to sell. It’s not exact science; it’s pure negotiation.

Think of a traditional market. Imagine you try to sell oranges at a price no one is willing to pay. You simply won’t sell. The same happens in the stock market. I can set any price I want for my shares, but if it’s far from the market consensus, I’ll be stuck with them. The market functions as that meeting place where a reference price is established. If a stock trades at 16 euros and I try to sell it at 34, I will almost certainly fail.

Now, here’s where it gets interesting. For all this to work properly, we need liquidity. Lots of liquidity. I’ve seen stocks skyrocket exponentially in a short time and everyone gets excited, but when you look at the trading volume, it’s ridiculous. There are hardly any real buyers and sellers. That’s dangerous. When liquidity is low, prices can be completely distorted. A desperate buyer might pay anything, or a scared seller might give away their shares. Big moves attract naive investors, but working with low-volume assets is like walking into a trap.

Before continuing, it’s important to clarify something: there is the primary market, where companies issue new securities, and the secondary market, where investors trade those securities among themselves. The market value we’re talking about is always that of the secondary market, where already issued shares are traded.

When we talk about how the value of a stock is calculated, the formula is quite straightforward. Market capitalization is the total number of shares multiplied by the price of each. So, if you divide the market cap by the number of shares, you get the unit market value. It appears automatically on brokers’ platforms, but there’s an important detail: the bid and the ask. The bid is the price at which you can sell, the ask is the price at which you buy. The difference between them is the spread, which is the implicit commission charged by the intermediary.

Now comes the uncomfortable part. Is the market value efficient? Honestly, no. The market price doesn’t always reflect the true value of a company. That’s why bubbles happen. That’s why Terra went from 11.81 euros to 157.60 euros in less than a year, all driven by internet frenzy and not by real results. Then came the crash. Or look at Gowex, which boasted of being a global Wi-Fi giant but turned out to be one of the biggest scams in the continuous market.

So, how do you calculate the value of a stock if market numbers can be misleading? This is where the concept of value investing comes in. Some investors look at the book value, which arises from assets minus liabilities. They ignore what the market says because they believe time will put things in their proper place. And often, they’re right.

What I’ve learned is that market value is a useful but incomplete tool. After a decade of low interest rates and lax policies from central banks, money is now looking more at the factor of value than pure growth. Companies that grow with consistent revenues and controlled expenses are gaining relevance compared to those betting everything on the future. Market value gives you the price, but the true value of an investment requires looking much further beyond.