Ben Hunt, former hedge fund manager and creator of Epsilon Theory, once wrote that a bet is a tax on bullshit. It is a sharp and accurate reminder that opinions are free, narratives are endless and forecasts cost nothing to produce.
Talk demands nothing. A bet, however, demands everything.
It requires sacrifice. It forces you to risk something you value in order to express what you believe. A bet strips away bravado and insistence and drags your opinion into an arena where it can be tested.
This is also what markets do. Every trade is a wager. Every decision to buy or sell is a claim backed by capital and time. Markets turn private belief into public consequence. They convert theory into exposure.
You may think a price is absurd, but until you act your conviction is weightless. The market does not reward eloquence and fancy models. It rewards sacrifice. It taxes idle speculation and exposes conviction.
This is why market prices offer true signal. The price at which a buyer and seller agree to trade at tells you exactly what those participants truly believe at that specific point in time. In that sense the market price can never be right or wrong. It simply is.
Because value is always subjective. And it is only ever truly revealed through action. You may not agree with it, but it was clearly suitable to those participants at the time, otherwise they wouldn’t have entered into the trade.
As time moves on we may get a better sense of who came out ahead, but even then it is hard to say. The shares sold may go on to perform well, but if the seller used the funds to buy something that performed even better, then the trade was a good one. Or perhaps they used the funds to fulfil a long held dream, pay for a life-saving operation or support a cause they care deeply about. Only they can judge whether the exchange was worthwhile.
Price is external, but value is personal. It is shaped by our needs, preferences, understanding and time horizons. It is dynamic, changing as information accumulates and circumstances evolve. And it is revealed only when we engage with the world.
This differs from how value is usually presented, namely as an absolute figure waiting to be uncovered through data, analysis and theory. But these all involve personal judgements and the reference points all vary. There is no single intrinsic value. There is only your best estimate, in the context of your personal circumstance.
Perhaps that view is informed by an expectation of how others may value it in the future, but that forces you into a Keynesian beauty contest, where the task is to predict the subjective views of thousands of strangers at some later date.
That’s a difficult game.
A better approach is to ask what the asset is worth to you, personally, if you had to hold it indefinitely. This is a more meaningful concept of intrinsic value, one that comes from the asset itself rather than what it may later be sold for.
This is what Buffett meant when he said; “buy a stock the way you would buy a house. Understand and like it such that you would be content to own it in the absence of any market.”
Some people struggle with this. Why buy a share if you can never sell it? But this simply reflects a misunderstanding of what a share actually represents. That is, a part ownership in a real business. And if that business reliably produces an attractive and growing stream of cash flow, you’d need a very good reason to sell.
Real investing is grounded in determining what an asset can provide to you over time, independent of market price. Cash flows, utility, scarcity, protection and optionality are the real reasons to own something, even if nobody notices.
Once you think this way, the market’s role becomes clearer. Its purpose is not to validate or refute your view. Its purpose is to occasionally offer an opportunity when price strays far from your personal appraisal.
For investors this is grounding and liberating. You do not need the market to agree with you. You do not need to persuade anyone. You can ignore the crowd’s excitement or despair and focus on one question: what is this worth to me.
And if you have an opportunity to acquire an asset at a price at or below your estimate of value, it only matters if you are prepared to act. Only then is any conviction truly revealed.
More bluntly, put up or shut up.
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