I started investing in the markets last year. Everything made sense, or so I thought! Investing is a really fun game. You get to read a lot. You learn about a lot of businesses, a lot of whom were already a part of your daily lives but you never noticed. After a lot of reading and researching, you find businesses which are worth owning.

You always want to find businesses which the markets have priced incorrectly, mostly lower than what you think their fair value is. The game is to own these businesses at a time when everyone else is ignoring them. No one else sees value but you do. These are the ones which make for a good story 20 years down the line.

The trickiest part however is, you can never say if the price at which you are buying is right. I have read enough literature to understand, equating a numerical price to the value that someone is offering is not a science. It is not an art. Its a craft. Assigning price to a business, is as vague as assigning value to a job opportunity, your personal time, a relationship or anything else. If it was a science, making money or any decision would’ve been very easy.

What is Science? Purest form of science is math. Decide the inputs, put an operator between them, you’ll get an output. No if, no but. You can become the best by doing day and night.

What is Art? Expression of creativity and skill. Any kind of output can come with a defined set of inputs. Everything is a maybe. No clear definition of winning or becoming the best.

What is Craft? Something which has a basic set of rules. Something which you get good at by experiencing and indulging in. It has a fair bit of science, fair bit of art but lots of bits of experience. The best have their own peculiar styles.

All of our life, like the markets, is a narrative to justify the prices we pay to own a unit of value. A naive mistake that I did was to trust research reports of brokerage houses when I started investing. It is the biggest error you can make. What I forgot was, all the tables in these reports are on the whim of a person who is a excel ninja. If they want to price to be 500 they can change the growth rate to 20%. If they want it to be 300 they can make it 5%. Obviously these guys are “experts” but most of the recommendations are based on biases.

If you want to sell your business, you’ll value it higher. If someone wants to buy it, they’ll value it lower.

If you like a stock and want to own it for 50x returns, the market and you need to believe a story that can make it go 50x. Or if you are a crypto denier, you’ll want to see the trillion dollar coin market caps burn to the ground.

Everything that we value, has a price attached to it. But the price that we are willing to pay vs what the right price is, is constituted by stories and narratives. There are past trends you can make sense of, try to learn from, but it makes absolutely no mathematical/financial model sense to value something at 75x sales, at a PE ratio of 150, while something else at 15x sales, at a PE of 1.5. Mathematics helps us to get to a price, everything else is a narrative.

Similarly in life, the price on your time, relationships and everything else is a narrative of the value you derive out of them. This is the narrative we tell ourselves to justify decisions we take. And so my decisions may make sense to me but no one else around me. A high paying job which makes me work for 12 hours is great for me, but the worst for you. I might value a tag on my CV and so maybe willing to pay 200k USD and 2 years of my life for an MBA but it might look like the worst idea to you. Living with parents in a cut off village is something I might find value in but you might abhor me for doing that.

The stories are different, the characters in them are different. Underlying assets are the same, the price we attach to each of them are very very different.

The conclusion is simple. All price is wrong price. Tell yourself a good story to find enough value in your asset and then all price will be right price. 😀

Drives the point home:

General behaviour life money philosophy price Value