Random walk: future steps or directions cannot be predicted on the basis of past history. Thus, short-run changes in stock prices are unpredictable.
Investing as a Way of Life Today
Difference between speculations and investments: time period and predictability of the return.
To stay even, your returns must match inflation (averaged 4% from 1962 to 2018).
The Firm Foundation Theory
Each investment instrument has intrinsic value which can be determined by careful analysis of present conditions and future prospects. Investing is then a matter of comparing something’s actual price with its firm foundation of value.
A stock’s value ought to be based on the stream of earnings a firm will be able to distribute in the future in the form of dividends or stock buybacks.
But this relies on tricky forecasts of the extent and duration of future growth…
If I can’t comprehend the statistics behind it, I’d throw ML and theories that work on a higher abstraction, bearing some assumptions. It seems like trading securities is the largest pattern-finding game yet. I’m not sure how much value is actually created as a result.
The Castle-in-the-Air Theory
Analyze how the crowd of investors is likely to behave in the future. The successful investor tries to beat the gun by estimating what investment situations are most susceptible to public castle-building and then buying before the crowd. This is a fickle game!
An investment is worth a certain price to a buyer because she expects to sell it to someone else at a higher price.
Reeks of a hot potato game and insider trading. This notion of the greater fool makes me doubtful of the Kenyan real estate market . There are a lot of financiers that are selling property. If the property was that valuable, wouldn’t you hold it instead of selling it at a discount today?
With regard to beating inflation, that implies all the money that’s in people’s bank accounts is depreciating, as opposed to maintaining value. Consequently, money in the bank should be for short-term use - an emergency fund and that’s it(?)