Old You

In theory, a contrarian stock picker picks a business listed on a stock exchange they think is “incorrectly” priced. This means they think the price is significantly less than the stocks “intrinsic value”. Price is not value. Intrinsic Value is a fuzzy estimate of what the normal price of the underlying business “should” be. Normal tries to take out the noise of excess short-term pessimism, and looks at the business over a more reasonable time frame. Say the next 3-5 years. Price is a balance of supply and demand, and both change. Lots of profit may mean supply adjusts up as competitors are attracted. Not much may mean competitors exit. Similarly, lots of new demand without new competitors can mean better than normal profits. The analyst doesn’t know the correct price. They do their work, buy, and then wait. While waiting, everything will change. This delay in feedback makes it hard to be honest about whether you were right/wrong. The world of business is complex, and so even if a stock does well, it might not be for the reason they thought. Valuing well requires building processes and feedback loops. Valuing well is a practice. A practice in learning from an old you, and a time, that no longer exists. In a context that won’t be repeated.