... Example. Say I think company XYZ is worth at least $10 in the future. It now sells for $5. When that future arrives and XYZ does hit $10... could I just conclude that that $10 is then the "true price"?
It depends right?... Dynamic environment; changing circumstances; new potential markets; less competitors etc. etc. All the new and then unforeseen factors may mean $10 then is way overpriced or way under the new "true value". So just as we cannot say that old and established companies' share price are "true" on most days; we too cannot say that in the distant or medium future, the price will be true to its value. Therefore, we can only value a company based on current and existing information - That mean our estimate value must be referring to the value at this current point in time... The idea of the long term the market reflects simply mean that others in the market do not agree with our assessment, but they are wrong and we are geniuses and given enough time - they too will see the light... It does not mean that in the future, the business will grow to meet its true value
I think the claim that you are trying to make is that everything is relative: i.e. that it is impossible to say at any given point in time that the price of a security accurately reflects the security's value because in the future circumstances may exist that render the convergence of the security's price with its value inaccurate.
Interestingly, you do not back up this claim with any
real world examples. Why is that? Can't you find any?
I suspect that you can't because your claim is contradictory. You say or seem to say that if today I estimate the value of a particular security to be $10 per share and the security is then being offered in the market at $5 per share and if it takes 12 months for the price of the security to converge with its value of $10, the security may not really be worth $10 per share by that time because, in your words, "
changing circumstances" have arisen over the course of that 12 months that may make the security overvalued (or undervalued as the case may be).
But how does that prove your point that one can never "
say that in the distant or medium future the price will be true to its value"? In the example that you give, the "
changing circumstances" have diminished the security's value, so of course when the price of the security finally reaches $10 per share it is overvalued. The value of the security has changed in the meantime and if I continued to hold it I would be a fool.
The only way that your point could be correct is if I remained ignorant of the diminution of value that these "
changing circumstances" have had on the security's value and continued to hold onto it. But if I have remained ignorant of these "
changing circumstances", the fault lies with me. How does my ignorance of factors affecting the value of my investment prove your point that one can never "
say that in the distant or medium future the price will be true to its value"?
I understand that you are trying to argue that it is impossible to know at any given point in time whether a security is accurately priced in relation to its value, so why not just accept in the
here and now that a security's value
is its price and look no further.
But the
made-up example that you give above does not prove your point and is implausible in any case. I think that if you backed up your claim with some
real world examples it would demonstrate whether there is any empirical support for your claim and help you focus on whether your claim refers to something that occurs in the real world.