Intuition friction…

Sometimes we need to re-train the way we think.  We as humans have a tendency for just taking things as is, we don’t challenge the status quo…especially one that is teeming with very bright people.

Well, when it comes to investing, or lets say listening to CNBC, here are some of the things you’ll hear the talking heads saying –

– “there are more buyers than sellers today”

– “GM appears to be undervalued and is a steal”

And my favorite….”buying Apple right now is a good bet”.   Hilarious.  I don’t want to bet with my money… After all, it is actually fun to bet money when its someone else’s.

How can things like this be bent and said on TV.    Wall Street is just like any other market where buyers and sellers can freely meet to transact.  Unfortunately, they confuse the heck out of consumers so they will play their game.  For a transaction to occur, there has to be two parties who both think are getting a good deal right!?  How can there be more buyers than sellers???? There are no orphan stocks!  Both sides of a trade must think they are getting a good deal or the value they seek.

How can someone tell if stock is undervalued?  One mans trash is anothers treasure.  Perhaps I am an investor and I have a huge passion for the well being of our environment.  I may be willing to sell Exxon immediately without paying any attention to price…at a value most agree is “not right” or undervalued.  I don’t care, I can’t believe what they just did in Valdez, Alaska!  I just want out…thats where I place value.  Or, maybe I am just a former VP with a large concentrated holding and I am looking to get out and diversify.  This is a simplified example, but the principles valid, and as a result I might drive price down as I sell a large lot.

Price isn’t falling because of risk or return alone.  The amount of things that go into a “price” is complex.  A price includes opinions, new news, true fundamentals, emotions, etc.  Why waste your time trying to guess the right price based off fundamentals?  After all, the “right” price is just the price that two parties are willing to transact act?  By the way, if you look at the performance of professionals within the industry pertaining to their ability to price a stock…it’s HORRIBLE.  It’s worse than what pure chance would depict.  A room of monkeys throwing darts at random stocks are factually better investors…largely because they don’t charge fees:)….Humorous?  Not when this is someone’s future and results of their life work.

How come we walk into Walgreens and just trust the prices we see on the shelf?  I walk in and just buy the most expensive toothpaste.  That price tells me its likely good (not to over simplifying again) toothpaste! If we looked at Walgreens like many look at the stock market, we’d instead get in our car and drive around to three or four other pharmacies to look for a cheaper/better price.  (Actually, Wall Street would have you pay someone else to drive you around!)  I’d argue the stock market is likely much more “efficient” than the toothpaste aisle.

Question the status quo, follow common sense.  Markets work.

Categories Investment, Uncategorized

1 thought on “Intuition friction…

  1. I never claimed to be a writer…


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