Tuesday, March 24, 2009

A Slightly Different Way of Looking at Buying Stocks

When buying a stock, there are generally (in an all things equal sort of world) 2 schools of thought that people adhere to:

1) I am buying part of a company that is undervalued and is intrinsically worth more than what I am paying.
2) I am buying a piece of digital paper which I think someone will be willing to pay more for in the near future.

Obviously, I am in the camp of the former school. Don't worry, I won't delve in to how ridiculous the latter school is-there has already been too much written on that.

What I am going to write, is that when you buy a security, you are effectively saying that anyone who sells at the price you pay (or below, for that matter) is wrong... Think about it...

There are few things in the world where a person can implicitly say by their actions "I don't care what everyone else is doing... I see something that the whole world is missing out on. They are all wrong!" You and I do this on a daily basis whenever we buy and/or hold onto our securities.

This 'I am right' attitude is something that both traders of stock and investors in companies are alike in. Entrepreneurs are the same way; when they open a business, they are implying that they see a need for a service that no one else is passionate about/convinced of enough to actually do.

Really, it is pretty crazy if you think about it. I think that if more people realized what they were implying, when they were doing whatever it was that made them do the implying in the first place, then they would think about the courses of action they take a lot more carefully... Especially for people in the second school of thought that I mentioned; mainly, I would imagine there being a lot more interest in the reading annual reports.

1 comment:

Jae Jun said...

Whenever I buy or sell a company, I do sometimes think about whether the person on the other side is wrong or right. Why would he be selling while I am buying..