01-24-2022, 07:19 PM
There is 2 types of investors
<!-- SC_OFF --><div class="md"><p>There are two types of investors who evaluate a company:</p> <p>Those who evaluate a company by the numbers and those who evaluate a company by its history. </p> <p>Investors who only look at the numbers will tend to undervalue a company relative to its potential and miss out on extraordinary companies. Investors who only look at the story tend to overpay for companies based on nothing concrete and get sucked into speculative bubbles. </p> <p>In truth, the two methods must essentially be used in synergy to arrive at a fair price. An investor who values all companies with a pre-determined formula simply has no understanding of what it means to find a company's intrinsic value. An investor who believes that an extraordinary company that will change the world justifies any price has simply never opened a business book. simply never opened a history book.</p> <p>From the outset of a numbers-based valuation, he tion based on the numbers, it is important to remember that all investors have a bias (either bullish or bearish) towards a company. The danger is that even with numbers that are supposed to be objective, you can make them say whatever you want. By changing a simple % growth here, a simple discount rate there, I can give a stock the valuation I want. When I started investing in the stock market, I bought companies without knowing how to value them. When I learned how to do valuations, I went through all the TSX companies one by one. I realized that strangely enough the companies I owned were all undervalued and the ones I didn't own were either fairly priced or overvalued. It didn't make sense, either I was incredibly lucky to have picked the only 10 undervalued companies on the TSX, or my calculations were completely off, the 2nd option made more sense.</p> <p>History-based evaluation also has its problems. Creativity is impossible to quantify. This company makes the best electric cars and its founder is a genius! This company must be worth 20 trillion dollars! </p> <p>Unfortunately, just because the product is Unfortunately, just because the product is great doesn't necessarily make it a good investment if you're paying $20 trillion for a company that's only going to produce $2 trillion in profits in today's terms over its lifetime. If a company made the discovery of the century, a cure for all cancers, would you invest in it? The quick answer would be yes! And now if I tell you that its discovery is that eating a few dandelion flowers available in unlimited quantities on just about any piece of land cures them all? The fact that a discovery is extraordinary, does not necessarily mean that the company would be able to enrich the investor with it.</p> <p>The story of a company is what gives soul to the number and the numbers are what give life to the story. Assessing the value of a company is an art, relatively easy to do, but much more difficult to master and even after years, one never stops evolving.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/just_overated"> /u/just_overated </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/sb4vs7/there_is_2_types_of_investors/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/sb4vs7/there_is_2_types_of_investors/">[comments]</a></span>Kind Regards R
<!-- SC_OFF --><div class="md"><p>There are two types of investors who evaluate a company:</p> <p>Those who evaluate a company by the numbers and those who evaluate a company by its history. </p> <p>Investors who only look at the numbers will tend to undervalue a company relative to its potential and miss out on extraordinary companies. Investors who only look at the story tend to overpay for companies based on nothing concrete and get sucked into speculative bubbles. </p> <p>In truth, the two methods must essentially be used in synergy to arrive at a fair price. An investor who values all companies with a pre-determined formula simply has no understanding of what it means to find a company's intrinsic value. An investor who believes that an extraordinary company that will change the world justifies any price has simply never opened a business book. simply never opened a history book.</p> <p>From the outset of a numbers-based valuation, he tion based on the numbers, it is important to remember that all investors have a bias (either bullish or bearish) towards a company. The danger is that even with numbers that are supposed to be objective, you can make them say whatever you want. By changing a simple % growth here, a simple discount rate there, I can give a stock the valuation I want. When I started investing in the stock market, I bought companies without knowing how to value them. When I learned how to do valuations, I went through all the TSX companies one by one. I realized that strangely enough the companies I owned were all undervalued and the ones I didn't own were either fairly priced or overvalued. It didn't make sense, either I was incredibly lucky to have picked the only 10 undervalued companies on the TSX, or my calculations were completely off, the 2nd option made more sense.</p> <p>History-based evaluation also has its problems. Creativity is impossible to quantify. This company makes the best electric cars and its founder is a genius! This company must be worth 20 trillion dollars! </p> <p>Unfortunately, just because the product is Unfortunately, just because the product is great doesn't necessarily make it a good investment if you're paying $20 trillion for a company that's only going to produce $2 trillion in profits in today's terms over its lifetime. If a company made the discovery of the century, a cure for all cancers, would you invest in it? The quick answer would be yes! And now if I tell you that its discovery is that eating a few dandelion flowers available in unlimited quantities on just about any piece of land cures them all? The fact that a discovery is extraordinary, does not necessarily mean that the company would be able to enrich the investor with it.</p> <p>The story of a company is what gives soul to the number and the numbers are what give life to the story. Assessing the value of a company is an art, relatively easy to do, but much more difficult to master and even after years, one never stops evolving.</p> </div><!-- SC_ON --> submitted by <a href="https://www.reddit.com/user/just_overated"> /u/just_overated </a> <br/> <span><a href="https://www.reddit.com/r/investing/comments/sb4vs7/there_is_2_types_of_investors/">[link]</a></span> <span><a href="https://www.reddit.com/r/investing/comments/sb4vs7/there_is_2_types_of_investors/">[comments]</a></span>Kind Regards R