Figuring out the value of any investment is one of the great keys to investing.
This is week four of my investment series and I’m bringing up creating value because it’s so important that we first remind ourselves that value is created in the eye of the beholder first and then we talk about how we trade that value in exchanges.
Follow me here…
We create the value as humans – right?
For all the things, we produce, mine, pick, pluck, print, research, draw, data mine, play, create – we create all the value in the physical world.
And more importantly, as humans we also place the meaning on what’s valuable and what’s not.
We are meaning making machines in our brains desperate to determine value.
Any investment is only as good as what the people around it think it is
worth, or what value it has to them. It’s all perceived value.
Actual market value is the price someone will actually pay for something.
Take your home, for example.
You need to keep warm, and you need a place over your head.
So on average, your house is worth more than your car because we value it more. We, as society, created that, and we created the meaning behind the value the house adds.
It is funny; we create the value of things, but things at the end of the day are just things or services.
Why do we value diamonds over, say, Styrofoam?
Imagine if everyone thought Styrofoam was special—crazy, right?
But follow me here…
Everything at some point in time was a raw material from our lovely planet Earth that man converted/combined/ transformed into something else, which our blood, sweat, and tears went into, and we gave it value.
It’s bizarre sometimes what we as humans decided what was of high value and what is “worth” something.
I tell you this because nothing is intimidating about the investment world; it’s just something else that we give meaning to.
The stock markets came together like any market did, as a place of
trade. And that’s all it really is.
Don’t let it intimidate you from exploring it further.
Here’s the other point I want to make regarding this topic of value.
For every transaction, there is a buyer and a seller.
If there is no buyer, then the seller is out of luck, and whatever he is selling is worthless.
Remember the tulip and bulb craze & crash of 1637 in Holland? (It’s okay if you don’t, you weren’t alive then—you can Google it!)
In her fantastic book Practically Investing, Coreen T. Sol sums this phenomenon up so nicely that I couldn’t have said it better myself:
“For every transaction, there is someone willing to buy and
Coreen T. Sol, Author of Practically Investing
someone willing to sell at an agreed price, both believing that
it’s good value and that the counter-party is a little crazy. […]
That’s what’s fun about this. The differences of opinion are what
keep markets humming and prices continually adjusting to find
the fair value. It’s been said that it’s only a fair trade when both
parties consider the other to have received the better deal.”
This is why we need to figure out our why and know our value positions.
Knowing what we think our investments are worth is a game. You need to always be guessing at what price you think the buyers will be buying at.
Now, regulated markets make this game more straightforward than say buying or selling something off of Craig’s List or Kijiji.
Nonetheless, knowing and remembering that there are always two-sides to every trade and watching what other trades in the recent past have been listed at may help you figure out value.
Creating value really only comes once a trade is in place, whether monetary or otherwise, and is completed.
That’s the only time you really know for sure what something is worth.
The rest is fake, for lack of a better word or perceived value until it materializes.
Creating value in your investments really only happens after you’ve “sold” – now whether you do that and make money or lose money is a different story.
If you haven’t lost money investing at some point, I would argue that you aren’t really trying hard enough or you really aren’t investing. 🙂
I think the bottom line is that you have to look at the big picture, take a macro view while keeping your pulse on the micro view – aka. your own personal goals and what you want to get out of the deal.
This is why we always must hold our vision, intentions and goals before us.
When you do, you….
Live Your Legacy!
xx Lisa
PS. If you want to join me for my Investment Planning Training then make sure you sign up at financialbliss.ca to get the Investment Planner {a beautiful investment workbook I created just for you!} and join the Money Makeover Facebook Group where I will walk you through how to plan your investments. The training is already in the Facebook group – waiting for you!
Looking forward to seeing you there!
