The uncomfortable truth is that my instincts cannot tell a falling share price from actual danger. The job is to build a portfolio and a mind that can tell the difference.
The key difference is an investor vs a trader’s mindset.
To an investor, price is separate from value. Value is how much the business is worth based on discounted future cashflow. Value doesn’t change every minute. Not even daily.
But for a trader, price is the reflection of value. Price is the average consensus view of the value of a company. Price is value and it can change every minute or even every microsecond.
As a result if one holds a trader’s view, volatility is risk. But to a long term investor volatility presents opportunities to either buy or sell at extreme prices.
Thanks Kevin — this is the cleanest version of the distinction I have read. The clock is really the thing. A trader is pricing the next move; I am pricing the next decade of cashflows.
The part I keep coming back to is that price is the consensus estimate of value, not value itself. Most days the two sit close enough that the distinction is academic. The windows that matter are the ones where they don't — where the consensus is reacting to sentiment and the business hasn't moved. Budapest was one of those. The admission price is sitting still long enough to tell the difference.
Very easy to read, the writing has almost some element of beauty to it.
It touches a key point.
You did your homework.
Many people don’t.
Knowing why you own something is key to act rather than to react and be betrayed by one’s own psychology, which can easily happen when emotions run high and everybody (the herd) seems to be screaming to sell.
Beautiful city, terrible timing. Walked the Chain Bridge about four times pretending I wasn't refreshing the Hang Seng on my phone. Worth going back without tariffs in the air 🙂
The key difference is an investor vs a trader’s mindset.
To an investor, price is separate from value. Value is how much the business is worth based on discounted future cashflow. Value doesn’t change every minute. Not even daily.
But for a trader, price is the reflection of value. Price is the average consensus view of the value of a company. Price is value and it can change every minute or even every microsecond.
As a result if one holds a trader’s view, volatility is risk. But to a long term investor volatility presents opportunities to either buy or sell at extreme prices.
Thanks Kevin — this is the cleanest version of the distinction I have read. The clock is really the thing. A trader is pricing the next move; I am pricing the next decade of cashflows.
The part I keep coming back to is that price is the consensus estimate of value, not value itself. Most days the two sit close enough that the distinction is academic. The windows that matter are the ones where they don't — where the consensus is reacting to sentiment and the business hasn't moved. Budapest was one of those. The admission price is sitting still long enough to tell the difference.
Volatillty is your servant
Ha! It definitely keeps me honest as to whether I have done my research or not.
This is your best piece of work Philip, really enjoyed reading!
So glad to hear that. Such comments are fuel for the next batch of articles.
If you know anyone else that might find it interesting, do share :-)
Great article, thank you Philipp.
Very easy to read, the writing has almost some element of beauty to it.
It touches a key point.
You did your homework.
Many people don’t.
Knowing why you own something is key to act rather than to react and be betrayed by one’s own psychology, which can easily happen when emotions run high and everybody (the herd) seems to be screaming to sell.
That’s a really insightful post. Thanks to it, I’ve been able to think a bit more about the stock market.
Thanks Woong — glad it gave you something to chew on. The stock market rewards people who've done that thinking before they need it.
How was Budapest though?
Beautiful city, terrible timing. Walked the Chain Bridge about four times pretending I wasn't refreshing the Hang Seng on my phone. Worth going back without tariffs in the air 🙂
This is a genuinely honest and insightful piece! Thanks for writing it. I will definitely bookmark and reread it from time to time.
You are welcome. I am glad you liked it.