Forum Archive Index - September 2000

[Michael Bartrom <michaelb@bca.co.nz>]

looking for a 'single solution' may be harder than one imagines.
try buying companies instead of shares. Having selected a good company, why
should 
the price other people are prepared to pay you for your shares have any
bearing on your investment?
See Warren Buffett's 'Mr Market' parable.





        -----Original Message-----
        From:   tennyson@caverock.net.nz [SMTP:tennyson@caverock.net.nz]
        Sent:   Wednesday, 6 September 2000 03:14
        To:     sharechat@sharechat.co.nz
        Subject:        RE: [sharechat] Is a paper loss a real loss?

        > 
        >If you analyse the value of your shares according to accounting
        >principles then they have a value every moment that the market is
        >open and there buy orders active.  This is the immediate
        >(existentialist perhaps?) value of the shares.
        >
        >
        Yes
        >
        > 
        >However value is a concept which transcends the immediate 'price'
of
        >the share.  Whenever you buy a share you are effectively saying
that
        >the value of the share is not the current price.  This value exists
        >as a 'belief' in the mind of the person holding the share.  The
only
        >time the two intersect is when a share is bought or sold.
        >
        >
        I am being semantic here, but I would argue that the value is the 
        price.  What is cash, if it is not a reflection of value?

        When people are buying 'value' shares though, they are really buying

        'future value'.   Actually that's not quite right either as the 
        instantaneous share price today often *is* a reflection of future 
        value in discounted cash flow terms.  Investors buy because 
        their perception of future value is different from that of the 
        market. 
        >
        > 
        >For those unwilling to believe that there is a future value to
which
        >the price is leading - you have made a loss.  But to those who have
        >the faith to believe - the value is as yet undetermined.
        > 
        >Sacramental economics.
        >
        >
        I can't agree with the religious analogy.   I am not saying that 
        share prices cannot be influenced by sentiment.   But underlying
that 
        the value of a company is largely determined by future prospects.  
        These prospects are tangible and can be measured in dollars and 
        cents.  No 'faith' is required.
        >
        > 
        >Either way you lose until you find someone who believes the value
        >is higher than you do.
        > 
        >
        If you are a trader that may be so.

        But if you are an investor you are raking in the dividends while 
        you wait.   I would hardly call holding something like RBD and 
        getting paid 12% just to sit on your own money a 'losing' position. 



        SNOOPY


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