Undervalues vs Overvalued
Since I have some free time this morning, I thought I would wax poetic on the use of those two terms. I rarely use them, and when I do its probably because I failed to think of what I really meant to say. markets ascribe their own value to an equity, and that is a mass concensus. Hard number like book value, quick assts ratios, even P/E are easy to calculate an on occasion have some meaning to a companies worth. But in reality, stocks value is determined by millions of people andd what they will pay for it at a given time. Whether its actually worth what one pays for it is almost immaterial. In trading one looks to find those that have near term potential for price share increase (or decrease if one shorts). There are a lot of comapnies that are undervalued whose price willl remain low for reasons that have nothing to do with our perspectives. And in the end, that is not what makes us see a company's stock as being viable for accumulation. What drives just about everyone is the beilif, prediction, forecast that their investment, for whatever term, will grow. I've bought tickers that were worthless in terms of being overvalued because I felt they could be profitable trades. I've also bought what I thought were 'undervalued' stocks to see the mass opinion of the mm's/traders/private sector vote against me and sent it further down.
That is one of the best reasons to use stops. We can't time markets, and no one accurately predicts market movements right every time. The best we can do is look at the fundamentals, the products/services it provides, and finally the trading patterns for a day or week or year or decad. Then we guess - we look at the company and assess whether its one that can reasonably be thought to advance in price. I respect eveyone's statment when they say that a company is presently undervalued. What I do with that information is go look and see if the market is starting to accumulate it or if its flat. After all, no matter how 'right' an individual's assessment may be, the whole market gets to vote. Being a deomocratic system there is, the most votes win. Of course, like Chicago in the old days, some vote more often than others...multiple large block buys or sells are worth watching.
lastshadow |
