How do you determine the fair market value of securities with large bid ask spreads?

Question

Only looking at price data (historical and current) ?

Obviously its higher than the bid and lower and the ask, but by how much?

Answer 1

If you want a number for settling an estate, the IRS will accept the average of the high and the low for the day.

If you are being philosophical, then, no, the answer is not "Obviously its higher than the bid and lower and the ask". The value is what somebody is willing to pay for it, which means the "bid". (The "ask" is what somebody wishes that he could get for it, with no reason to believe that the would-be seller is rational.)

Answer 2

I think you have to ask yourself what exactly you mean by "fair market value." Strictly speaking the answer to your question is the last price at which a trade took place (bid=ask). A spread means the buyers and sellers have a (momentary) difference of opinion concerning the (current) fair market value of the security in question and, therefore, no trade is taking place.

To borrow liberally from the wise men of finance, the market value of a security will, in time, reflect something close to the value of the underlying company. So, logically, you must understand something concrete about the present and future value of the company to know anything about the "correct" value of its corresponding security.

The trouble is that in the short term this may have nothing to do with the current market price of the security and in the long term nothing concrete is certain.

But, it seems to me the question you are really asking is "at what price am I sure to make money on the trade?" The wise answer to that question is "none."

Answer 3

The fair market value is what someone is willing to pay for that stock at that price at that given time. If the spread is higher that means, no one wants to buy at the price someone is selling. Fair market value is in the eyes of the beholder. When Google went public, many people thought it was too high at $200. Look at now. The same applies for any other stock that is being traded. If the company has the potential to grow 10-15% or higher, buy at the market and it is a fair market value for you to buy at that price.

Answer 4

There are so many ways of investing. Some people invest in something when it is UNDERVALUED. HOWEVR I see many many stocks go up and up and up even when they are way overvalued. So...I buy based on its weekly long term trend. If it is going up....jump in. Jump out when it gets weak. Then go short when the top is behind you and it is now going down....Learn to watch MOVING AVERAGES.