Pictures never lie but they can mislead. I am not haggling over the price, just the quantity. I only wanted a couple so as not to stink out the compartment.
A lot of traders would line the platform offering food and souvenirs when the Trans-Siberian pulled in for a stop usually lasting about 20 minutes.
But this post is not about travel; wait until next week for that. I’d like to write about what is the right price, what is fair value and price discovery.
But this is too ambitious to delve into in a short post, so I am just going to take share prices. If you look at shares in a company making widgets, why should the share price fluctuate from day to day, or why should it move at all unless the company has released a trading statement?
The two drivers can be termed fundamentals and sentiment. Fundamentals are factors such as exchange rates and the cost of raw materials. For example the widgets are made of aluminium imported from Australia. The price of aluminium goes up so, in theory, the share price goes down. Likewise if the Austalian dollar strengthens it will cost a buyer outside Australia more. If the widgets are sold into an overseas market the exchange rate will impact profitability. But it’s not that simple. A canny widget maker may have bought aluminium futures and be protected against a price rise. But, if the price were to fall, he would be at a disadvantage to his unhedged competitor. It makes things complicated for an investor. To make things much worse, there are many other fundamentals that will move a share price.
Now to sentiment. Mr McGuire, in The Graduate, advises Benjamin to get into Plastic. More recently it was dot com shares. Prices get bid up and a bubble created. But if the music’s playing and you’re not dancing how are you going to make any money?
I am a profound believer in investing in equities. The usual alternative, bonds, is a no-go area for me. I simply do not understand enough about either government or corporate bonds to venture here. Moreover, it is a safe bet that interest rates will gradually start to rise, maybe before the end of this year. When interest rates rise the price of bonds fall. My exposure to the bond market is limited to holding Premium Bonds and some Managed Funds that are partially invested in bonds.
The message I am trying to send is that if you have been fortunate enough to accumulate some savings you owe it to yourself to invest it wisely. It takes years to accumulate capital but it only takes one bad investment decision to lose it. This is a self-preservation society, as they sing in The Italian Job. There’s no hurry, you will not miss the train.
