Saturday, 24 August 2013

Alternative Investments and Price-Value Relationships

Alternative investments to equities both illustrate the universality of value investing principles and reinforce the key element of relating price to value.  Below summarizes some alternatives to equities and their price-value relationship.

Straight Bonds:  Duration and coupon drive valuation and price.

Convertible Bonds:  Equity component drives variability, some price-value divide.

Real Estate:  Buyers intuit a price-value divide when seeking ":good deals".

Precious Metals:  Supply-demand imbalances drive price-value divide

Other Collectibles:  Personal attachments drive price-value divide

Value investors habitually relate price to value.  This attitude applies not only to equities, but also to all other investments.  The habit of relating price and value comes more naturally for certain assets than others.

Real estate is a good example.  People seem intuitively able to understand that they might be getting a "good deal" on real estate, but many exhibit less intuition when thinking about common stock investments.  They do likewise with consumption goods such as cares and loans or leases taken to finance their purchase.

Markets for some alternatives show how price-value differences are less likely to appear.  Bonds are a good example.  These instruments have features such as duration and interest rate that common stocks lack.  This makes it easier for investors to agree on their value and produces prices more reflective of value.  The absence of these features on common stocks suggests reasons to believe that price-value differences are likely to occur on common stocks.


  1. The ability to understand something immediately, without the need for conscious reasoning.
  2. A thing that one knows or considers likely from instinctive feeling rather than conscious reasoning.
insight - instinct

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