Price vs. value:

Price vs. value.

People seem to be very confused by this concept.

The price of something is what you can buy it for today.

The value of something is a completely different argument.

The value of an object has different value to different people.

A gemstone might mean nothing to someone but it could mean the world to someone who’s grandparents used to wear that gemstone.

The value of something is in the eyes of the beholder.

However, financially, that’s not true.

There are ways to work out what a reasonable value of a business is based on its financials.

The price is a completely different story.

The value of Tesla based on its balance sheet is significantly less than the price today.

Does that mean Tesla is expensive?

Yes.

Its price does not match up with the value of a business.

What’s the value of Bitcoin?

0 because you can’t value it with traditional financial metrics.

Its price is in the thousands, but that’s not the same as it’s value.

It’s only as valuable as people make it out to be.

If it starts dropping and governments come in to ban the use of it or exchanges, it’s value could go down to 0.

Is the technology behind it revolutionary and will generate significant value for society long term?

1000%.

But you can’t value it.

The amazing thing is there is so much information online to learn for yourself how to value a business.

Found this channel a few months ago called Everything Money and it’s a goldmine. These are the types of channels that should have millions of subscribers.

They teach you exactly how to evaluate businesses from a guy who’s been investing tens of millions of dollars for 20 years. He’s been through several financial crises and knows how the market moves.

Listen to the guys who have done it before. Learn from those before you. They have all the lessons.

In the short term, you may look like an idiot to some people but it doesn’t matter. This technique has proven correct for the last 100 years of stock market investing. Companies eventually reach their true value. If the price is above that value, it’s expensive and you may not want to own it. If the price is significantly below the value, you should think about buying it because the price will follow the fundamentals.

Right now everything seems to be overvalued.

A favourite indicator of Warren Buffet, the stock market to GDP ratio, is now above 200%. That means the market is facing a decade of negative returns.

When you pay more for something than the value of the business, it’s more difficult to make money in the long term because the price will come down.

The amount of people investing now in the market is insane.

I heard an 8-year-old kid is trading stocks.

Are you kidding me?

If that doesn’t scream craziness, I don’t know what else does.

So in order to be around for generations and make serious returns, you have to be patient. If you guess when the market crashes and know how it plays out, you can generate serious returns that you can flip back into companies at the bottom where their price is significantly discounted to its value.

Just be patient.

That time will come.

The best investors go to work when the market crashes. They enjoy market crashes because they get to buy great businesses at cheap prices and then sit on their money and let compounding do its job.

People need to learn how important compounding is. If you can compound your money above the market for decades, you’ll make significantly more than others. But that’s the point, you have to be able to do this for decades. A track record of a couple years in a bull market is not as impressive as generating returns in a bad market.

That’s when you know you’re dealing with serious investors.

I hope to get there someday but who knows. You just have to commit to the process and stay disciplined.

Understand how the market works and how businesses work. Read the books. You really don’t need to be that smart to make serious money. You have to put in the time to learn from the best, do the work and be patient.

You also have to solve your own mind because investing is a game against yourself. Are you comfortable watching tons of people around you make more money than you? Absolutely. I know in the long run the disciplined strategy works, so just wait.

Learn about the difference between price and value.