DEFINITION of Full Value
An asset is said to have reached full value when its intrinsic value is equal to its market value. Intrinsic value is the calculated value of an asset. Market value is the price at which an asset can be bought and sold in an open market.
BREAKING DOWN Full Value
When an asset has reached full valuation, it is said to be neither over- or undervalued. Portfolio managers and analysts often watch for full valuation as an indication of an appropriate time to sell an asset, although professional investors may disagree as to the point at which full value is actually reached given differing estimates of intrinsic value.
Determining Full Value
As noted, full value will be reached when an asset's intrinsic value is the same as the price at which it can be bought or sold on the open market, its market value. Often, however, the market's valuation of an asset differs from the intrinsic value of the asset.
Fundamental analysis is most commonly used by analysts to determine the intrinsic value of an asset, such as a stock. Fundamental analysts study anything that can affect an asset's value, including economic and industry conditions, as well as a company's financial condition and management team. The end goal of fundamental analysis is to produce a quantitative value that an investor can compare with a security's current market price. Due to the countless variables involved in determining intrinsic value, including the valuation of intangible assets, estimates of intrinsic value can vary between analysts.
In a perfectly efficient market, the market value of an asset, such as a share of stock, should always equal its true intrinsic value. However, in reality, markets are not perfectly efficient. Not all investors have the same access to the data on a given asset, which may lead them to reach different intrinsic valuations of the asset. Their interpretation of the asset's value will inform their decision on what it is worth, and what they are willing to pay for it, on the open market. Taken as a whole, all of these investors' actions will affect the market valuation of the asset. Supply and demand may also play a role in setting a market price. If investors as a whole determine that a stock is an attractive investment, but the number of shares are insufficient to meet all of their demand for the stock, the stock price may rise, even farther than the intrinsic value of the stock. Additionally, market sentiment can have an influence on market price. Recessions, regulatory audits and even idle gossip in reference to a company can affect the market price of its stock.