Saturday, October 1, 2011

A Weekend Note - The Price We Pay

What price this stock, what price that one? We all would like to think that we pay less than what it's worth so we can reap the profits as prices rise to it's "true" worth. But as markets go, is it really worth the price we pay and the price we get? Who tells us so and what do they know that I do not?

The world is full of analysts who analyze and on their word many hang their trading decisions. Do we question their analysis even if we read them thoroughly? Do most of us bother reading them at all? I seriously doubt it. Lastly, do you do your own analysis of a stock's worth? What criteria do you use and what proof do you have that you are correct?

In our rush to be right, often we fail to realize that the price that we seek may be elusive at best and unrealistic at worst but somewhere in between is the true answer and that is what we pay or get.

Who amongst us has not chased a stock price? Who amongst us has not wished they had chased one? Reality is that the true value of a stock is what people pay and people get at any moment in time. That is the nature of free markets. We can argue endlessly about fundamental worth, p/e ratios, betas and book value, important as they are to those who put value on them, but when it comes to paying your moneys where do you really get in or get out?

These lessons are learned quicker by those who have been in business as merchants. It's nice to think we'll always get what we think something is worth, ahh but what if no one is willing to buy it at that price point? Is it still worth that price? Maybe to someone who is not in our reach, but that matters not, what matters is the fact that we have to sell our merchandise and buy fresh inventory in order to be open another day.

Think about all your purchases throughout your life. How much were you willing to pay for the latest toy, fashion, car, computer, cell phone, or iPod. Do you hold them to be at the same value today? Most likely not because value, in the end, is the price we are willing to pay and willing to receive.

So it goes and so it is that the markets are a true demonstration of what free competition is about and why PCLN, NFLX, AAPL, GOOG, BIDU all fetch what the market will bear from one moment to the next. It's also why one day you stand hours in line in order to be the first to own a product and settle for yard sale price for the same later.

The bottom line is that, in the markets, you are either playing or sitting it out which is the ultimate proof of what you think something is worth whether the world agrees with you or not. So in short, value is ever changing and ever evolving just like life.



Happy Trading, Living and Dancing
Anni

The Daily Pick - AAPL

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