Price versus Value
Price is a function of
supply and demand characteristics, which are often influenced by the news of
the day and short-term results. This has always been true, but is even more so
today with social media, the 24‑hour news cycle and all the information
available to investors. Value, on the other hand, is the net present value
of future cash flows based on assumptions for growth, discounted at an
appropriate interest rate. The Price of a publicly traded security is
often not the Value of it. The trading Price is known daily. Value takes
knowledge and experience to fully define, and is more often an art than an
exact science.
Bruce Flatt, CEO of Brookfield
Read the above very carefully. When the markets go down
sharply as they did yesterday, it is a time to buy stocks, not sell them. Avoid
getting emotional and stay rational. It’s the only way. At times of emotional
extremes, be contrary. Tune out the mindless media who are more interested in
attracting advertising revenue by selling fear and catering to the worst
instincts of the retail investor. Read Howard Marks or the public disclosures
of great CEO’s like Bruce Flatt. Remember why you bought your holdings in the
first place. The short-term price movement of a security is as fickle as the attention span of a
goldfish. Now is the time to buy quality at a discount price. The chances of
doing that now are much greater than they were two or three months ago. Think
long term and be aggressive while others are running for the exits. And if you
have little money to invest right now, just hold. Six months from now, you’ll
be glad you did...Demand Supply...
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