My only concern when speculating on market instruments is that I get it at a price that I believe is likely to present a future opportunity for profit. The price can be as incorrect as it pleases, provided I can identify a way to stack the odds of profitability in my favor, I will consider the instrument worthy of my attention.
Exactly! It really makes no difference whether you consider the price right or wrong. I think we’re both on the same page, it’s just that your definition of “value” differs from my definition. You buy because you anticipate that the price will increase in the future. You say it moves up because the current price is incorrect (if I understand you correctly) – I say it moves up because the balance of supply/demand changes. I’d say what you’re really doing is anticipating higher future demand for the stock, rather than it moving towards some supposed “correct” value. But the end result is the same though – it’s just a different way of looking at it.
How can one correctly gauge the true value of all shares on issue of one company on the basis of supply and demand for a smidgin of the total shares on issue? It is simply the way they have chosen to do it (it's not the only conceivable model),
I think it’s the most realistic model though, if you’re being honest with yourself. Many people get in to a lot of trouble because they argue with the market. Stock price has been constantly dropping since they purchased it, and it’s all so easy to find an excuse (any excuse) and just say the market is wrong. Most people (not saying you) can’t accept that they may have been wrong – much easier for them to say the market is wrong.
I believe it’s much healthier though (both emotionally and financially) to just accept that you were wrong (the market is right), cut your losses before they become excessive losses, and move on to a better opportunity.
You still haven’t answered my original question – if the price is wrong, what is right? For you to say the price is wrong, you must know what the right value is, otherwise you can’t say with any certainty that the price is wrong.
How would you value a rare coin? Don’t know about you, but I’d look up the most recent
price that it traded for at auction. What’s a gold bar worth – look up the most recent gold
price and multiply it by the number of ounces in the bar. Why would you think the value of a share is any different to price? Value is the same thing as price!
This is another one of those fashionable mantras that I abhor with a passion. This statement can only be true within an extremely limited context but is definitely not universally true. I have approximately 90,000 pieces of evidence that prove that your statement is either incomplete or incorrect. Every one of these reasons has an Australian dollar sign in front of it and each now resides in one or more of my various accounts.
I don’t see why you should abhor that statement – it seems pretty common sense to me. If you say your house has increased in value, what you’re saying is that current prices in the area have gone up – ie. people will be be willing to pay a higher price for it now. If someone is willing to pay a higher price, then the value has gone up. If the property market has dropped and people are no longer willing to pay as high a price for your property than before, then the value of the property has gone down. Value and price are the same thing! I think it can be pretty dangerous when people start thinking of value and price as different things, as it can cause people to hold on to a "dog" of a share just because the share price is below what they
think it should be worth, and they aren’t willing to entertain the idea that their analysis may be incorrect.
You’ve got a method that works – that’s great. Doesn’t mean price is wrong though. I’m also doing well in the current market. Despite the market dropping 9% over the last 2 months, my account has increased quite a significant amount over the same period. My account is currently at new highs. But so what? Many different methods can work. There’s more than one way to skin a cat. However, I should say that although the trading ideas at the top of the thread
do work (I have used a similar system in the past to great effect) and am a great fan of Darvas and Livermore, I am not actually trading that way at the moment, as I’m not sure that a trend following approach is the best way to go in this market. In general though, I think those are pretty good rules to follow and should keep most people out of trouble. It’s not the only way to make money in the market though.
When the highest offer for purchase of one of my houses is beneath the price I am willing to sell at (my valuation) then I simply refuse to sell, no transaction occurs and the bidder walks away empty handed.
Yes, but it’s still all your house was worth on this particular day. It may be worth more next month, so you may sell it then instead. That’s up to you. If you think it is likely to be worth more at a later date, then you can hold on to it until then. It’s more difficult to know the value of a property than a share at any given time. You don’t get a valuation on your property every day, but you do get a valuation on your shares every day as they are constantly trading every day.