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Winning Investors Over: Surprising Truths About Honesty, Earnings Guidance, and Other Ways to Boost Your Stock Price by Baruch Lev

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Chapter 5

Nothing in Excess

The Hazards of Under- and Overpriced Shares, Particularly the Latter

In This Chapter

  • Surprise, overpriced shares are hazardous to companies and their managers.
  • Vicious cycle: from share overpricing to corporate overspending and finally to earnings manipulation.
  • How to determine whether and to what extent your company’s shares are mispriced.
  • How to close the valuation gap.

My dictum, nothing in excess,1 will test your patience with me. You surely believe that the higher the share price, the better. I will argue, based on solid evidence, that share overprice (price above fundamental, intrinsic value) is prevalent and—hard to believe—bad for you, leading managers to dysfunctional activities and ultimately to seriously ...

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