When people buy and sell items on eBay, they don’t just focus on price; they also look at the value of the items they’re buying and selling.
Those who are better at assessing value usually have the upper hand. They can buy items at a discount to market value and can turn around and sell the same item at a higher price for a profit.
This is also common in the real estate market. Investors who can accurately assess the value of a property can buy it, fix it and sell it at a profit.
As a real estate investor, I’ve done this over and over again. I was able to spot and buy houses that were selling at a large discount for various reasons (i.e. divorce, foreclosure, neglect, etc).
When it comes to investing, it’s no different. Investors who can assess the true value of a company stand to benefit.
The average investor tends to focus on the price of a stock instead of the value of the company. That’s because it’s the stock price that is quoted every day, not the company's intrinsic value. Amazingly, stocks are very often mispriced.
This can easily be observed during bear markets when the stock prices of companies fall well below their true value. Fear and uncertainty cause investors to flee the market causing an imbalance between sellers and buyers.
Investors can make outsized gains if they can learn to ignore all the sensational gloom and doom headlines that instill fear. If they can focus on the value of a company, they can buy great businesses at a discount.
Over the years, Warren Buffett has had several quotes attributed to him. This one in my view is by far the most important:
Price is what you pay, value is what you get.
A great book I recommend is The Five Rules for Successful Stock Investing by Morningstar. It shows you step by step how to evaluate companies and calculate their intrinsic value using the discount cash flow (DCF) method.
Related posts:
Most Common Investing Mistakes - Part 1 (Overconfidence)
Most Common Investing Mistakes - Part 2 (Following the Crowd)
Those who are better at assessing value usually have the upper hand. They can buy items at a discount to market value and can turn around and sell the same item at a higher price for a profit.
This is also common in the real estate market. Investors who can accurately assess the value of a property can buy it, fix it and sell it at a profit.
When it comes to investing, it’s no different. Investors who can assess the true value of a company stand to benefit.
The average investor tends to focus on the price of a stock instead of the value of the company. That’s because it’s the stock price that is quoted every day, not the company's intrinsic value. Amazingly, stocks are very often mispriced.
This can easily be observed during bear markets when the stock prices of companies fall well below their true value. Fear and uncertainty cause investors to flee the market causing an imbalance between sellers and buyers.
Investors can make outsized gains if they can learn to ignore all the sensational gloom and doom headlines that instill fear. If they can focus on the value of a company, they can buy great businesses at a discount.
Over the years, Warren Buffett has had several quotes attributed to him. This one in my view is by far the most important:
Price is what you pay, value is what you get.
A great book I recommend is The Five Rules for Successful Stock Investing by Morningstar. It shows you step by step how to evaluate companies and calculate their intrinsic value using the discount cash flow (DCF) method.
Related posts:
Most Common Investing Mistakes - Part 1 (Overconfidence)
Most Common Investing Mistakes - Part 2 (Following the Crowd)
No comments:
Post a Comment