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Ok, so, a stock does not have intrinsic value. The subjective valuation of the stock varies with time. Good. Two questions: 1) How does good investors consistently make money ? They buy a stock when the subjective valuation is low and sell when the subjective valuation is high. But, not all stocks go up in valuation. Some stocks that are low in valuation
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Let me give another example. A retail store that owns nothing. The store is leased and holds no inventory - they take orders and deliver. However, they have $10mm cash in hand, ($10/ share) which they have put in T-bills. The company generates just enough money to meet its expenses. Are you suggesting that this company has no intrinsic value though
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> But how did the one who wants to trade at intrinsic value discover what intrinsic value is? By intrinsic value, I mean the book value. Let's say for example: a retailer. The retailer owns real estate where the stores are located. It has products in its stores and warehouses. You can check the value of the real estate today, sure it may go up
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It happens because of "extraordinary popular delusions and the madness of crowds". The book cites several examples of that. People tend to follow the crowd, it is psychological, they want to conform to the society. So, they follow the latest fad and buy things at any price - tulip mania for example. I don't think (I could be wrong) they
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Thank you for your reply >Booms and busts occur because of the business cycle brought on by inflation Are you suggesting that booms and busts don't / won't happen under gold standard ? I don't think that's true, as speculative bubbles can occur even when there is no inflation, though I don't have examples with me now. > Buffett
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According to Wikipedia, http://en.wikipedia.org/wiki/Subjective_theory_of_value , "The subjective theory of value is a denial of intrinsic value. It leads to the conclusion that there is no proper price of a good or service other than the rate at which it trades in a free market" So, sounds like this theory is closer to Efficient market theory
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1. Is there a clear definition of money supply as defined by the Austrian school and if so what is it ? I have seen one defintion here : http://www.mises.org/story/1397 and an argument against it, here: http://stefanmikarlsson.blogspot.com/2007/09/money-supply-definition-issue-revisited.html Do we have a consensus on this ? 2. Assuming we can clearly
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Thank you very much for your replies. Appreciate your time and effort.
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Junk bonds, sub-prime crisis, dot-com bubble: none of these caused the economic system to collapse. In fact, the Fed is solving these problems with more inflation. I am trying to understand HOW this will lead to a "total economic collapse" and HOW it manifests itself . I understand the "failed currency" part. Hyperinflation can lead
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I understand the bad effects of inflation. But, let's ignore them for now. My question is. why is it that inflation cannot continue for ever ? In other words, the governments all over the world, keep printing money for ever. I have read that "this is not sustainable" and at some point, it will lead to disaster. What's the reasoning