Consider whether customers can choose substitutes. My
concern about cryptocurrency is how easily new currencies can be coined until there’s one clear winner.
One tech stock’s initial public offering followed another
in the late 1990s until the industry shook out. The cryptocurrency binge today reminds me vividly of those days.
Once you’re confident in your supply/demand outlook, then and only then can you consider whether an
asset is cheap or rich.
Most of the time, the market gets
it approximately right by averaging out everyone’s mistakes. Some investors might be overly optimistic and
buy too high while others might be too pessimistic and
sell too low. Usually those errors cancel each other out,
but once in a very long while, crowd psychology takes
prices to extremes.
If you become good at spotting when markets may be
ahead of themselves, you have a better chance at profiting from one of those life-changing opportunities or
avoiding catastrophic mistakes.
With that said, you can overpay for a great company
and still make money if you are patient and the company
continues to grow. If it grows quickly enough, it can
catch up to the price you paid and go on to turn a losing
position into a profitable one. BetterInvesting stresses
focusing more on buying at a reasonable price than the
perfect price.
The most urgent challenge is to find companies that can stimulate demand for its products and
ward off competition.
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