Price Not Always Reflect Value

Sunday, August 28, 2011

ORDER financially savvy, I say you should be able to distinguish between value and price. This is the basic principle of investing.

My simple definition for both, the value is what we get and the price is what we pay. The difficulty is the price in front of our eyes, while the value is unobservable. In many instances, the price of an asset reflects its value. In investing, we want to find any assets whose value is above the price.

Investors believe that in the long run prices will converge towards its value. However, in the short-term rates are not uncommon on the value or vice versa. Price is the consensus of market participants regarding the value of an asset at a specified time. Because the affected market sentiment, investors may be too pessimistic or too optimistic.

As a result, they can be wrong in assessing the assets and asset prices also deviate from its value so it does not reflect its value. Not unlike the investment, when they want to buy goods and services, we also weigh the value and price. We will be willing to buy something if its value is greater than the price or have a high value for money and avoid items whose value is below the price.

Interestingly, the value of goods and services to a person is a relative and subjective, depending on purchasing power, hobbies, and lifestyle. Eating in fancy restaurants or in five-star hotels cost hundreds of thousands of dollars per person is worth according to some people but not for me.

Conversely, family travel abroad once or twice a year to give sufficient value for my money, although the fees paid not less. But, I do not get the same value for money from the executive-class plane ticket or a luxury car. On the other hand, prices are set by the company or the seller was not always reflect the value or cost of production.

There is a basket of goods and services whose price is set to follow demand. Products that enter this group are products that have differentiation with little or no substitution.

An example is the cost of toll roads. If overseas toll charges have never climbed or even lowered, here it dinaikkan.Untuk toll charges attract new investors and because of the high demand, we increased toll fees every two years to reflect inflation. Another extreme example, we also see many products that cost several times the cost of production.

High-tech products and new drugs that no rival in the category ini.Yang also enter this group is branded.Jika product you buy Hermes handbags and Lamborghini cars for instance, the price you pay to buy the most prestige.

This product is intentionally high priced above cost affordable to only a handful of consumers have for their identity as a group of the few people who haves. Because making money is not as easy for me as a big businessman, I know myself to avoid these branded products.

Extravagant Also Good

If your economy is also not yet signed the group up, you should agree with me about the value of super-expensive products. However, we must thank the groups who are willing to collect for the products. Because of them, upscale shopping malls like Plaza Indonesia, Plaza Senayan and Pondok Indah Mall 2 can continue to survive.

Without rich people are wasteful, malls are also highly likely to go down a class. To be able to spin faster and create many new jobs, the economy needs rich people are generous in spending money.

Communities are rarely able to eat outside, rarely recreation, and only occasionally shop at the mall to make the economy slow flow. In essence, for a capable, efficient and economical it is not good for the economy, although it might be good for families mereka.Kondisi is known as the paradox of Thrifty.

Beautiful Differences

This is the beauty of life kita.Yang no less beautiful is the difference in the lives of wealthy ini.Yang should thank fate for the poor and disadvantaged.

Because so many low-income people, those who earn twenty million dollars or more per month can be a nickname here is rich and can afford to hire maids and chauffeurs. Imagine what happens when almost everyone in this country as rich as in developed countries.

In line with this, the intelligent and educated people should not be arrogant to the ignorant or uneducated. Because many of the less intelligent, they are called smart or well educated so it is worth getting a respectable position in a company with huge salaries.

Those who have jobs still have to appreciate the dozens to tens of millions of people in this country who are less fortunate because they do not earn tetap.Karenanya, they must create their own jobs in order to stay alive as trading stalls, open a shop at home, and others.

The absence of unemployment benefits or social assistance to the tunakarya making them unable to "idle". Only rich people who are having a lot of assets / savings or have parents and relatives who are willing to be boarded capable of unemployed in our country. Unemployed is something that is "expensive".

Likewise, those who are blessed with a handsome face and cantik.Mereka must respect those who are less attractive in appearance or mediocre. The majority should not look down there minoritas.Karena minority, the majority group has the confidence and greater bargaining power.
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