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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Spekulatius who wrote (61602)	12/31/2018 9:30:16 PM
From: Graham Osborn	Read Replies (1) \| Respond to of 78753

When you say "a stock doesn't care who owns it," you are referring to intrinsic value. For intrinsic value you discount all the cash flows from today through the end of time. I'm just pointing out that intrinsic value is only a relevant quantity if you're willing to hold for a very long time. That's why Buffett is one of the very few people who talks about it. For the rest of us, "owner value" doesn't correspond to intrinsic value. I would argue that the reason stock prices don't correspond to intrinsic value most of the time is that most market participants don't have infinite time horizons. Berkshire is a good example of a stock with a disproportionately large number of long-term holders relative to the average stock, resulting in a much closer alignment between intrinsic value and market value than is typically the case. This is also why people are often willing to accept a lower price if they need to sell quickly. The value to the seller in this case is objectively lower than the value to a long-term buyer (although I don't claim most buyers fit this description). Although value investors use the terms "fear" and "greed," I would argue that most market participants are acting quite logically within the constraints of their respective time horizons. If you replaced emotional humans with unemotional computers without varying the time horizons, I think you would get a very similar result. The simple fact of the matter is that most people who call themselves "value investors" don't have long time horizons at all. I don't believe that is a sufficient criterion for good results, but I do believe it is a necessary one. The one situation where owner value and intrinsic value will often coincide is net-nets. In fact, the owner value might exceed intrinsic value on these due to management's tendency to ignore shareholders and operate like a service business. So a long holding period becomes less important/ desirable.