Resale value versus intrinsic value

Merger mania seem to have hit the stock market. Every day I hear of a new private equity story, a new MBO story or a sector consolidation trend.

I wonder increasingly whether valuations can be sustained on this basis. The market now appears to be valuing stocks on their resale value to a trade buyer - that is, pricing in efficiencies and synergies that will only ever occur if a bid is made - rather than on their intrinsic value as free-standing businesses.

Now that rather reminds me of the property market. I made enquiries about a couple of houses recently. Almost the first thing I was told by the agents was that it would be a good investment because I could sell it again for far more than I paid for it. (Seems to me they are assuming I'm not going to try to flip it...)

Excuse me? I don't walk into Tesco's and get told to buy the ready Lasagne because I'll be able to sell it for 5p more than I paid. I'm looking for a house. ie, somewhere to live. I am worried about things like its council tax band, how much space it has, energy efficiency, whether it's got a cat flap. I'm not thinking about selling it.

So why are they telling me first and foremost about the investment value?

Of course intrinsic value is a concept with a long and fraught history. How exactly you calculate it is tricky to say. But I do feel that this market in both equity and property has gone too far towards hoping for large capital returns and too far away from calculating earnings and rental yields. Which, after all, are what really drive the price for most stocks and houses.