First, spend a couple of sentences summarizing the Concepts in the article below ?

Then, answer the following. In the Concepts in Article, the speaker mentioned, "A stock is fundamentally more difficult to value than a bond, because its less quantitative." Why do you think this is so (think about intrinsic vs. market value)?

Stock Markets and Valuation: Independent Broker/Dealer Probably the first individual stocks that I had were ones thatI inherited a small portfolio from my grandmother, who was one of those millionaires next door, a teacher who, just over time, had invested in the market in strong companies, and built up a portfolio. I am Catherine Collins-Lang. After practicing law for a while, I went into private investment management. Those stocks, which, at the time, were the sort of blue chip stocksI inherited those, and I quickly sold off all of those at a loss, that were at a loss in the telecommunications industry, since this was in 2000, 2001, when those were down, to harvest those losses against some gains I had in my business. But Ive kept the other blue chip stocks over time, and Ive just let those accrue, and theyve grown significantly. And I look forward to that funding some of my childrens college education. And those have been your basic blue chip stocks, your Johnson & Johnson, your General Electric, your Exxon-Mobil, which has been a huge winner over the past 20 years. So thats the first individual stock portfolio that I personally had. An individual investor should never lose sight of the fundamental nature of the stock market, in that it is simply a pairing of a seller and a buyer. With respect to stock, its really understanding what a stock is and what it represents, and then how that may differ from how it trades, so understanding that a stock is really a tiny portion of ownership of a company, and it will trade at the residual value after all the obligations of that company are paid off. Thats the value thats left of the company. Debt, on the other hand, or a bond, is really just a contract that you have made with a company that has very specific terms. It has a set time periodits a ten-year note, its a thirty-year noteand, during that time period, the cash flows you will receive are set. Its a 5 % interest payment, its a 10% interest payment, and then at maturity you will get your capital, or your principal, back. If the company goes down to a quarter of what it was before, you still have the right to that contractually-arranged return of principal and the interest, and you are going to get paid before anybody who owns the stock gets paid. So it goes both ways, so theres less risk in it, but theres also less upside, because youve got a contract, you dont have an ownership right. A stock is fundamentally more difficult to value than a bond, because its less quantitative. There are more qualitative factors that are going to go into the evaluation of a stock, more assumptions you have to make. And the more you make assumptions, the more people can differ. A bond has assumptions built into it in its valuation, but the contractual cash flows are what they are. You can make various assumptions about how that should be priced relative to the price of risk in the market. You can make assumptions about whether that particular bond has a better or worse chance of being paid off than it did when it issued, which means the credit is either improving or disintegrating. You can have various opinions on whether it actually will be paid at all. So thered be a default premium, or default cut to the valuation of a bond, but fundamentally its much more quantitative to value a bond than it is a stock, and there are far fewer assumptions that you need to make about that particular security than you do with a stock. The stock market has an impact on a business in several ways. First is in the decision to actually go public and be listed on a stock market. The significant requirements that are placed on companies who go public to satisfy the regulatory requirements with respect to how much information they disclose to investors, how frequently, is something that many companies consider when they go public. The price at which they can sell their stock also will influence whether its worthwhile to raise money that way as opposed to other ways which might include through private investors or by borrowing from a bank or other lending institution. So thewhether theits often called the window for raising money in the public market is open or favorable will affect a corporations decision about whether they will in fact go public. And theyll also consider whether they are large enough and sophisticated enough to satisfy the regulatory requirements that are placed on public companies, both through the SEC and other government organizations, as well through their listing exchangewhether its the New York Stock Exchange or NASDAQ, they all have listing requirements. So that has an impact on how a corporation raises money, if they need to raise additional money to fund their operations, to grow their operations. It also has an impact on how they might compensate their key executives, if they are setting up a compensation plan that includes some element of providing stock to key employees, what price is that issued at? How long do they take to vest? When can these employees sell their stock? It has an impact on them in that sense, because there are requirements with respect to when people who are insiders to a corporation can sell stock. They cant sell stock ahead of announcements of key earning periodsother factors like that, they are restrained as to when they can sell stock. So that has an impact on how they set up those programs to interact with whats going on in the stock market. Corporations issue two kinds of stock, and not all of them issue it, but theres common stock and theres preferred stock, and in the capital structure, debt is what gets paid off first. Preferred stock, as its name implies, has a preferred status with respect to liquidation over common stock. Common stock gets everything thats left over. So preferred stock is sort of a hybrid between bonds and stocks, where it has some characteristics of a scripted return, where it may have a particular dividend that is equivalent to an interest payment that is typically paid in certain circumstances, but there may be circumstances when they dont have to pay it. Typically it has no maturity, although that isnt always the case. It can have a call provision, where its called, where, again, makes it much more like a bond. Sometimes its redeemable, which is like a bond with a maturity. Sometimes its convertible, and it can convert into common stock, so its a hybrid that goes between bonds and stocks, and it has a preferred position with respect to liquidation, and it may have some preferred dividends. But iton the other sideit often doesnt have the full participation in the increasing, hopefully, or decreasing value of a company. There are many different ways to approach the valuation of a stock. Most of them try to look at what the net present value of the stream of expected cash flows from that stock will be to the owner of that stock. And the dividend discount model is one model that looks at discounting back the stream of dividends that you expect over time, whether they are in debt, whether they are growing, whether they havent started yet and you expect them to grow in the future. You make your set of assumptions and you discount that back to today, and then you discount whats called the terminal value of the stock, what you would expect to sell that for at the end of that period. You look at that value, and thats what the dividend discount model does, and you have to choose a discount rate, and thats based on your perception of the risks of that stream of cash flows, which is of course based on the business model and your interpretation of what that modelthe risks of that model in your assumptions are. Then you can go out and look at a stock, valuing it based on what should this stock trade at, based on what other stocks or companies similar to it are trading at? And if its not trading at that level, if its trading above that or below that, are there factors that explain why it should get either a higher valuation or a lower valuation than whats out there? And in the end, you make your own determination on whether you think that stock is appropriately priced in the model, or whether in your best judgment, considering all the assumptions that youve viewed, that its undervalued, which means you would buy it, or overvalued, which means you would sell it, or short it, in order to make money if you assume over time it should come back to what its right value is in the market. There are many many different stock indices that are created, and theyre created by companies that are research companies, theyre market data companies, and they create indices that they put together to try to replicate, in a number, action in a certain segment of the market. So an index is merely an imperfect way to try to measure what the market is goingum, is doing. Because you cant ever measure the whole market. So theyre put together, you have to remember, theyre put together by companies that make selections as to what goes in and out of that index based on their criteria, whether its U.S. large cap stocks, which is the S & P 500 Index, or U.S. small cap stocks, which might be the Russell 2000 Index, or developed overseas markets, which is the EAFE, the Europe-AsiaFar East Index, which was created by Morgan Stanley, or there are emerging market indexes. There are indexes that slice the market by style of value index, of stocks that are trading on the lower end of a price book or price-earnings ratio. There are gross indices that are trading based on what characteristics they might have in terms of the growth of their revenue or the profitability of the companies that are in that. There are as many different indices as you can come up with, and the fundamental point to remember about indices is theyre made up, and people make them up to try to provide some arbiter of whats happening in the market. But theyre not perfect, and each one of them has their own bias. So stock market indices are used by investors in a couple of ways. One is to provide lowcost exposure to a general market category, by investing in a fund that mirrors itself off an index, so there is no stock selection, which eliminates a lot of portfolio management fees, and you really just have the trading expense. So its a low-cost way to buy the market, and thats one use that investors usefor indexesto look to see what kind of exposures they want and to buy low-cost funds that are modeled around those indexes. The other way is to use it as a benchmark to measure the performance of a money manager who may manage in that particular category, and to understand how that manager is doing versus that particular index. And you have to pick an index thats going to accurately reflect the universe of stocks that that manager is picking from, otherwise youll have a mismatch. So if youre looking at a U.S. large cap manager then you should look at the S & P 500 Index as an appropriate measure of how are they doing relative to the market. Its not perfect, but its an appropriate measure. But you cant measure someone whos managing an international portfolio against the S & P 500, and look at their performance, if in fact during that time period, international stock either vastly underperformed or vastly outperformed the U.S. stock, because different asset categories will do different things at different times. So you have to find an index that looks at what the universe of stocks that manager is picking from. I think attitudes toward investing have also changed. I think it has somewhat become a sport to some people that they can lose big time at, or they play for fun and then they get scared by what happens as they dip their toe into things that are moving so very very fast at the professional level. Probably the other significant change in the time Ive been working is the real democratization of the market, where individual investors are much more inclined to participate in the market, whether by choicethey run their own stock portfolios, they do their own research, which, again, is now available to them in ways it wasnt beforeor to some extent by force because theyre now funding 401(k) plans and defined contribution plans where they are responsible for growing the wealth that they need to survive in retirement, compared to 30 years ago, when many more employees had defined benefit plans where the company managed that investment process and provided them just a stream of income. So those are two significant changes that Ive seen in the industry over the last 30 years.