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Thursday, August 14, 2008

Value and Price

It's been a while since I last update the blog. A lot of time is due to I have difficulty in logging in to blogspot or even gmail especially after 9pm. Few of my colleagues also facing the same problem, having trouble logging in to blogspot, msn etc. But when we use our company VPN, quite surprisingly we manage to go through. So we suspect the Streamyx is having clogged network at the international gateway. This could mean that we are not getting the value of the product that we paid every month. One of Warren Buffett famous quote, "Price is what you pay, value is what you get" remind me of this. Too bad, we cannot do anything regarding streamyx since the company has the "best" broadband service in the country.

A lot of us got confused that value = price, and vice versa. But, in fact it is not - however, the relation between the two is very close. Price is in economics and business is the assigned numerical monetary value of a good, service or asset (source: Wikipedia). Value implies the worth of specific thing or a specific group of things - source. Often we found ourselves having difficulty in differentiating the two, especially in the stock market world and during the bear market season.

Example, after doing a lengthy research on company A, one might perceived company A as 1.00 per share when the share price was about 0.60, so he or she bought few units. But suddenly, when the market plunges, of course it will affect the company A stock as well. The company share drop 0.20 to 0.40. He or she who at first perceived the company A as 1.00 now in dilemma, whether to drop the investment, or continue to trust the company due to the financial standings of the company and the business nature of the company. From here, value and price will show significant difference. If he thinks that the company worth is 1.00, he will continue to invest in the company. This is value. If he thinks he already lose 0.20 per share since his buy price is 0.60, and drop the investment and go on with life, this is price.

The example given above might not be that appropriate, but at least that is what I can think of. I'm not advising whether we should hold or throw our investment away - but I just want to clarify one thing, "Value != price and vice versa." I actually see a lot of people, who at first told me which shares to invest in, telling me that now still below its worth, but the next minute they see red, they throw the investment away. The company might be a good one, provided they do some research on the background and management, but due to global economic situation, it might affect the company's share. But if the company is good, sooner or later it will climb back to their value, when others started to notice the company. By then, we only reinvest back in the company again - with higher price, we would have missed out on the gain, not only that, we could end up losing money again.

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