Below is a formatted transcript of my Tweet Essay on Asset Valuation. Based on this Original Tweet Thread. Also see my Master Index of Tweet Essays
⦕ ๐๐= A Parable of Asset Values ⦖
If you've got a ๐ of ๐s and you sell one to a ๐ถ for $1, it doesn't imply you can sell the whole ๐ for $1 each. Every sale is unique and limited. It depends on the market at the time and may not predict the price when you come to sell.
➤ Investors make this mistake all the time. They look in the ๐ฐ to see the latest sale price of whatever asset they hold and treat it as "money in the bank" when it's not.
Today's prices reflect a small volume of sales and the mindset of the handful people doing the deal.
➤ For your ๐ of ๐s, a lot of things can happen before you sell—
① Your๐s can go ๐คฎ
② ๐s can ๐ due to short supply
③ ๐s can ๐ due to surplus
④ You selling all your ๐s at once can flood the market, ๐ the price.
⑤ People lose their taste for ๐s
⑥ A better ๐ comes along
➤ You selling one ๐ to one ๐ถ for one ๐ต suggests that there may be a demand for your product, but it doesn't prove the value of your whole ๐load.
The only thing that proves the value of your whole ๐ is actually selling it.
➤ ๐คฆCommon mistake:
Day1: You sell an ๐ for $1
Day2: You sell an ๐ for $2
Day3: You sell an ๐ for $3
Day4: You hoard your ๐s, waiting for $4 ๐
Day5: No sales
Day6: No sales
Day7: Your ๐s go bad
๐ฉ๐ Lesson: Most "trends" are a lie. Just like in ๐ฒ๐ฐ
➤ I might buy the whole ๐ of ๐s from you, but certainly not at $1 each, even if recent verified sales were $1. That's because I am considering all the risks above. I am expecting a "risk discount" (or #RiskPremium) to compensate me for my gamble. Otherwise, you can keep them ๐s.
➤ ๐คฆ Another mistake:
Elon #dd_Musk is said to be the "richest man in the world" right now, "worth" ~$185 trillion, but most of his "wealth" is $TSLA stock, which is—um—a bit speculative.๐คช In 1 year it rose ~8x with little change in business fundamentals. Forbes Article on Musk's Wealth
➤ It's a long road from #dd_Musk being wealthy "on paper" and wealthy in cash he can do something with. In fact, he acknowledges being #CashPoor. He supports his lifestyle by borrowing against his $TSLA stock—which sounds a little scammy and bubblicious. What if $TSLA tanks? ๐ฑ
➤ Who determines that $TSLA is worth 8x what it was a year ago? Investors who trade it. This is limited to people who FERVENTLY BELIEVE IN $TSLA ๐. Those who DON'T BELIEVE ๐ don't trade it. IOW: Only the True Believers are setting the price of $TSLA. ...
➤ Trading by True Believers can be sustained for a while, especially if volumes are small, but ultimately every business must be proven by PROFITS, which are currently scarce at $TSLA.
To prove its price, not only must $TSLA sell it's ๐ of ๐s, but each must be golden.๐ฐ๐ฐ๐ฐ
➤ Gentle reminder: I'm sure #CharlesPonzi and #BernieMadoff would have been considered among the "richest in the world" at the peak of their scams.
Just sayin'.
{This blog entry added to Tweet essay: 1/21/21}
