Do not ever overpay for assets! Follow the economic cycle. 🙇🏼
Many successful investors make this mistake while riding the market to the top.
Investors fail to correctly read the real value of the asset and expect appreciation.
Stocks and Real Estate market values do not continue to appreciate in the short term and depreciate during recessions.
The best bet is to always pay below intrinsic value. 👏🏼
Intrinsic value is an investor’s perception of the inherent value of the asset.
Determine what value realistically makes sense for the risk and reward of the asset!
When you see investors excited to buy, do not buy, but sell.
⬆️Asset values will be over their intrinsic value.
❌Risks > Rewards
When you see investors scared to buy, do not sell, but buy.
⬇️Asset values will be under their intrinsic value.
✅Rewards > Risks
Investors fail to realize this notion due to emotions. Human nature causes people to feel safe on the top by overpaying but feel afraid on the bottom by underpaying.
Figure 1: Value vs Time graph example for assets. Assets market value (blue line) and Intrinsic Value are not as straight forward as the graph shows!
Intrinsic values change somewhat linear, but not perfect. The intrinsic value varies for every investor. Market value (blue line) is determined by supply and demand. Market value is what expands and contracts based on the economic environment. The Market Value (blue line) is not as perfect as the graph shows. You do not the time or predict the market. You determine where you are in the PRESENT time. If you can’t tell when the market is underpriced or overpriced, you won’t be a great investor! You sell when the market at the PRESENT time has more buyers than sellers. You buy when the market at the PRESENT time has more sellers than buyers. I have attached another graph. Every stock and real estate has different intrinsic lines and market prices.
Figure 2: Better example for stocks, share price, and time graph. The intrinsic value is not exactly linear, while market prices fluctuate below and above intrinsic value.