q      Markets are less reliable than accountants when it comes to estimating value: If you believe that markets are both volatile and irrational, and combine this with a trust in the inherently conservative nature of accounting estimates of value, it follows logically that you would put more weight on accounting estimate of values (book value) than on market estimates of the same (market value). Thus, when a firm trades at less than book value, you will be inclined to believe that it is markets that have a mistaken estimate of value rather than accountants.

q      Book value is liquidation value: In addition to the trust that some investors have in accountantsÕ estimates of value, there is also the embedded belief that a firm, if liquidated, would fetch its book value. If this is the case, proponents argue, a stock that trades at less than book value is a bargain to someone who can liquidate its assets and pay off its debt As investors, you can piggyback on such investors and gain as the stock price approaches book value.