Wednesday, March 26, 2014

Value

As an investor...trader...eh, I'm somewhere in the middle I suppose, I've been thinking more and more about value. Value is a very tricky thing, especially in the stock market. But let's take a more general assessment, shall we? The cost of a banana for instance. At your run-of-the-mill grocery store they cost what - .30-.40 cents each? Of course they're measured by weight usually, but your average size banana you know more or less what a 'fair' price is for that item. If you came on Sunday and the clerk rang you up for $1.85 for one banana, you would think you bought the last banana in stock. You would be surprised at its value would you not? You would think, fuck this I can buy a banana for $.40 down the street and you would walk your sweet ass outta that place. haha.

Or maybe not. It's still just a couple bucks.

My point is that we have a general perception of what items cost, but items are always subject to many moving forces that can shift rapidly. A drought in Florida could cause orange juice prices to spike. A cold winter can create high demand for natural gas. A new oil agreement can cause some relief at the pump. You get the idea.

What is fascinating is what we witness every day in the stock exchanges. Prices can swing rapidly. Sometimes as much as 50% in a 30 minute window. If Tesla's are allowed to be sold direct in Arizona and that story goes viral, share price can immediately appreciate.

Let's take Facebook as another example. Facebook stock is one that I have been in and out of approximately 5 times. Obviously Facebook is publicly-owned and is one of the most popular stocks on the market. I believe the average volume of shares exchanged is something like 100 million per day. That's a lot. Even more when you think that it's not a cheap stock. It was selling above $70 per share just a couple weeks ago. What's interesting is that very same stock now hovers near $60 per share. A drop of $10 per share. Yikes, right? If you had bought at $70 you would not 'like' this.

Fortunately for me at the moment, I do not own Facebook stock and am unaffected by its recent decline. **That is not to say I have not lose money as I like to say, "losing money in the stock market is a full-time job"**

Valuation in public companies is based upon share price, number of outstanding shares, earnings per share and other factors (like profit margin).

The price of items, in this case Facebook stock, changes daily. It is, in fact, a guarantee that it will change. Think of how crazy that is. Imagine if you went to the same grocery store and the banana went from $.3 on Monday to $.85 on Friday and down to $.15 on Sunday. You'd have some serious whiplash!!! Unpredictability does not breed contentment.

Of course that is partially the allure of the stock market. To find 'true' value where others don't. People have made fortunes doing just that. Unlocking the secrets of when something is either extremely over or undervalued. You can even do it with commodities (like bananas maybe??).

I come from no finance background whatsoever, so please pardon my ignorance but this is all quite fascinating isn't it? It also makes me nervous about purchasing a home (something I am still at least a couple years away from). How do you know the true value of your home. We know interest rates have been very kind the past few years, but that doesn't necessarily reflect home appraisals. If a Wal-Mart moves down the street your home may rise or fall. If public housing project are built or demolished your house may rise and fall. As we saw with the real estate bubble created by subprime mortgages, the threat of prices crashing hard and fast is practically on par with the stock market. Yikes. Only you can't pack your bags and move like you can buy or sell an item. Well, you can, but not in haste! Scary stuff, eh?

This is one reason why my dream job would be to own an NBA basketball franchise. Hands down if I could have any job in the world that would be it. Even the lowly Wizards. Shit even the Bobcats...move over Air Jordan. The primary reason is I believe I can evaluate talent better than most scouts. I am (well was would be a better word) a fan of Bill Simmons and I respect his opinions. More often than not I agree with them and more often than not he is proven right on the hardwood. This is probably why I would hire him as my general manager! Anyway, value changes quickly here too. Kobe Bryant is worth 15 million dollars in good health. Even at age 35. But saddle him with an injury and his return on investment diminishes significantly...or does it? The mere presence and name of Kobe Bryant attracts fans the world over.

Long story short, I think I can build a respectable basketball team. At least one that could beat the Bobcats. But I digress...just wanted to throw that out there for a 'passion career' choice for me!!

What do you think about value? What does value mean to you? Do you fret about the value of your home? Have you gained or lost money on your home(s)? What would you suggest to people thinking of purchasing (not me)?

It should go without saying that your input is 'valued'. ;) 

6 comments:

Anonymous said...

What is one person's jewels is another's garbage they say. Also, beauty is in the eye of the beholder, and well perhaps one can say that about value, too. Sometimes the value of something can be so manipulated and dependent of the winds of thought at the moment. Beware of being persuaded by hearsay, by rumor. Espcially in the stock market where that is happening constantly

Anonymous said...

Watching daily price movements on commodities is like watching ants crawl around an ant hole- you never know what the hell is happening. Like the disappearing plane, everyone chimes in with their " expert" opinion which is really not worth the air its drawn on.
Value can be determined if you understand very basic math- but it is easier to read blogs and listen to rumors-these losers will sucked into the goldman squid and spit out again as born again momentum predators who can do nothing more than try and predict WHEN something may go up or down. Suckers all.

Anonymous said...

Being a team owner sounds more glamorous than it probably really is. The media crucifies you, you rely on other people's performance, the pressure to use doping and questionable medical practices,contracts, logistics, unions, stadiums, investors, imbecelic athletes, prima dona superstars..... i could go on and on.
Sounds like fun, huh?

Anonymous said...

Trading stocks is often just a way of gambling. Good stocks can fluctuate based on sheer rumor. We are manipulated by so many different things...the economy, the world political arena, just plain bad news.It is no longer just a companies value that is the key.

Anonymous said...

Insolvent, nice robot proof for this topic. The mrkt. makes loosers and winners- no big thing. There is a way to always win in the long run but nobody wants to really do the necessary hard work required which includes personality traits few have.

Anonymous said...

Sad to say me and most of my friends have lost value on our homes. I only wish that the assessor's office would feel the same as potential buyers-as the market is still not where it once was. Home ownership and expecting your home to increase in value, is not a given anymore.