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
⦕ 🚛🍎= A Parable of Asset Values ⦖
If you've got a 🚛 of 🍎s and you sell one to a 🚶 for $1, it doesn't imply you can sell the whole 🚛 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 📰 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 🚛 of 🍎s, a lot of things can happen before you sell—
① Your🍎s can go 🤮
② 🍎s can 📈 due to short supply
③ 🍎s can 📉 due to surplus
④ You selling all your 🍎s at once can flood the market, 📉 the price.
⑤ People lose their taste for 🍎s
⑥ A better 🍎 comes along
➤ You selling one 🍎 to one 🚶 for one 💵 suggests that there may be a demand for your product, but it doesn't prove the value of your whole 🚛load.
The only thing that proves the value of your whole 🚛 is actually selling it.
➤ 🤦Common mistake:
Day1: You sell an 🍎 for $1
Day2: You sell an 🍎 for $2
Day3: You sell an 🍎 for $3
Day4: You hoard your 🍎s, waiting for $4 📈
Day5: No sales
Day6: No sales
Day7: Your 🍎s go bad
👩🎓 Lesson: Most "trends" are a lie. Just like in 🎲🎰
➤ I might buy the whole 🚛 of 🍎s 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 🍎s.
➤ 🤦 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.🤪 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? 😱
➤ 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 👍. Those who DON'T BELIEVE 👎 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 🚛 of 🍎s, but each must be golden.💰💰💰
➤ 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}
