I think your misunderstanding a fundamental concept of corporate finance. Why should the value of a company depend on how much money YOU invested. What we want to know is how much the company can return share holders per dollar of money given to the company by shareholders. Market capitalisation does NOT measure this quantity. Time and time again simplistic ratios based on current earnings and the share price its self (pe, cape, peg, ev/ebit) have all proven to be completely bogus measures of value. Why is it that studies have shown time and time again that high PE stocks (not necessarily the same as what we are discussing but a suitable enough proxy given similar shortcomings) consistently outperform low pe stocks?
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Hi All, page-32
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