The Playbook For The Modern Man

Australia’s Most Asked Investment Question Of 2020, Answered By An Expert

“Price is what you pay, value is what you get.”

The most asked investment question of 2020 is a doozy: “Is now a good time to invest?”. The short answer, of course, is yes.

But it’s not really the right question to ask. What’s more important is: “Why are you apprehensive about investing?”.

It’s probably that you are worried about buying a share for $1 and tomorrow it is trading at 90c. In other words: you’re worried about the price of your investment going down.

You need to reframe your thinking.

Think less about the ‘price’ of the shares and more about the ‘value’ of your share in that company. Remember, buying shares on the stock market is just a convenient way to trade a stake in a business.

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If you bought into a private business, let’s say you bought a 50% stake in DMARGE today for $10 million. For the next 10 years would you run around town asking other people how much they’d buy that stake for? And get upset when Mary from the queue at Woolies offers your $9 million? And Bob who you bumped into at the gym says $5 million?

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Or would you focus on advertising revenue, monthly traffic, costs and overheads and profit growth?

This is the difference between price and value – something Warren Buffett once summarised with the following quote.

“Price is what you pay, value is what you get.”

Sure, you might feel safer today with money in the bank, earning you 1.70% before tax and inflation, but do you really think investing in a portfolio of leading companies, over the long run, won’t yield a better result?

So yeah, it is a good time to invest. As good a time as any. Nobody knows what the price of anything will be tomorrow, the next day, next month or next year. It may be more expensive; it might be cheaper. Why worry about something you have no control over and no ability to forecast accurately?

Instead, focus on the long term value your investment portfolio is likely to create.

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This article is of a general nature only and does not consider your objectives, financial situation or needs. You should consider the appropriateness of the information in light of your objectives, financial situation and needs before acting on it and obtain copies of any relevant disclosure documents. Seneca Financial Solutions does not warrant the accuracy or reliability of the information in this report.

Luke Laretive, Seneca Financial Solutions, it’s Directors and it’s associated entities may have or had interests in companies mentioned. They may have or have had a relationship with or may provide or has provided investment banking, capital markets and/or other financial services to those companies mentioned. 

Luke provides clients with a daily note, which you can access here.

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