Latepost Twitter Ipo: Why A Proficient Merchandise Endure A Bad Investment (Or Vice Versa)?

In my concluding post, I valued Twitter at close $10 billion. I made a ton of assumptions to teach to that value in addition to I argued that changing those assumptions could give y'all a different value. In the concluding few days, I am for certain that y'all own got seen many stories close Twitter’s post-IPO worth, amongst my ship 2 weeks on Twitter, prior to its fiscal filings, I tried to toll the society (as opposed to valuing it) in addition to came upwards amongst a broad make of numbers, depending on my scaling metric (users, revenues etc.). That confusion betwixt value in addition to toll lies at the heart of why it is impossible to own got a conversation of how much a stock is worth, when the parties to the conversation come upwards from different camps. So, to decipher the difference, I decided to become dorsum to basics in addition to tried to lay out the differences betwixt the pricing game in addition to the valuing game, equally I encounter them.

The Pricing Game versus The Value Game

	The Pricing Game	The Value Game
Underlying philosophy	The toll is the entirely existent position out that y'all tin deed on. No i knows what the value of an property is in addition to estimating it is of footling use.	Every property has a fair or truthful value. You tin approximate that value, albeit amongst error, in addition to toll has to converge on value (eventually).
To play the game	You endeavour to guess which management the toll volition displace inward the side yesteryear side period(s) in addition to merchandise ahead of the movement. To win the game, y'all own got to survive right to a greater extent than oft than incorrect close management in addition to to travel out before the winds shift.	You endeavour to approximate the value of an asset, in addition to if it is under(over) value, y'all purchase (sell) the asset. To win the game, y'all own got to survive right close value (for the most part) in addition to the marketplace toll has to displace to that value
Key drivers	Price is determined yesteryear demand & supply, which inward plow are affected yesteryear mood in addition to momentum.	Value is determined yesteryear cash flows, increment in addition to risk.
Information effect	Incremental data (news, stories, rumors) that shifts the mood volition displace the price, fifty-fifty if it has no existent consequences for long term value.	Only data that alteration cash flows, increment in addition to adventure inward a textile agency tin touching on value.
Tools of the game	1.     Technical indicators 2.     Price charts 3.     Multiples & Comparables 4.     Investor psychology	1.     Ratio analysis  2.     DCF valuation 3.     Excess Return models
Time horizon	Can survive really curt term (minutes) to mildly curt term (weeks, months).	Long term
Key skill	Be able to gauge marketplace mood/momentum shifts before than the relaxation of the market.	Be able to “value” assets, given uncertainty.
Key personality traits	1.     Market amnesia 2.     Quick acting 3.     Gambling instincts	1.     Faith inward “value” 2.     Patience 3.     Immunity from peer pressure
Biggest Danger(s)	Momentum shifts tin make quickly, wiping out months of profits inward a few hours.	The toll may non converge on value, fifty-fifty if your value is “right”.
Added bonus	Capacity to displace prices (with lots of coin in addition to lots of followers).	Can provide the catalyst that tin displace toll to value.
Most Delusional Player	H5N1 trader who thinks he is trading based on value.	H5N1 value investor who thinks he tin ground amongst markets.

If y'all play the pricing game, y'all are a trader, in addition to if y'all play the value game, y'all are an investor. I am non passing judgment, when I brand this statement, because different some value investors, I don’t sentiment traders equally shallow or somehow less critical to the surgery of markets than investors. After all, a trader who makes a i chiliad one thousand dollar turn a profit tin purchase but equally much amongst that coin equally an investor who makes the same profit.  Ultimately, which avatar (price or value) best fits y'all volition depend non entirely on your grade of comfort amongst the tools (Are y'all improve at reading charts or valuing companies?) but also on your personal traits. In my experience, naturally impatient people who are easily swayed yesteryear peer pressure level almost never succeed equally value players in addition to excessively cerebral folks who own got to weigh everything inward the balance, before they brand decisions, are incapable of beingness traders. 

This dark in addition to white sentiment of the footing may strike equally some of y'all equally extreme. After all, why non permit for shades of grey, traders who are interested inward value in addition to investors who intend close the pricing process? While I volition dive into this netherworld inward hereafter posts, I volition non inward this one, for 2 reasons. The outset is that many of self-proclaimed hybrid investors are cipher of that sort. There are traders who pay but lip service to value, piece using it dorsum their momentum plays in addition to investors who claim to honor markets but entirely until they start moving inward the incorrect direction. The 2d is that at that spot is a danger inward playing on unfamiliar turf: traders who delude themselves into believing that they empathize value tin undercut their ain effectiveness but equally much equally investors who intend that they tin brand it in addition to  out of markets, when it suits them. A salubrious marketplace needs both traders in addition to investors, inward the right balance. H5N1 marketplace that has no traders in addition to all investors volition own got no liquidity in addition to i that has all traders in addition to no investors volition own got no centre of gravity. Ironically, each grouping needs the other for sustenance. Trading in addition to momentum drive prices to displace away from value, creating the bargains that investors endeavour to exploit, in addition to inward the procedure of exploiting them, they create the corrections in addition to momentum shifts that other traders exploit. 

This, of course, brings me dorsum total circle dorsum to Twitter. If y'all are a trader, ignore almost everything that I said inward my valuation ship but practise pay some attending to my pricing post. Even if y'all believe that my valuation assessment of $10 billion is a reasonable one, that should non halt y'all from buying the stock, fifty-fifty if it is priced at $20 billion, if y'all intend that the marketplace mood volition own got it higher. If y'all are an investor on the other hand, considering adding Twitter to your investment, it matters footling how much hype or momentum underlies the stock. If your assessment of value is about mine, it is non a expert investment for y'all at a toll higher than that value. As y'all brain to the debates close Twitter's worth inward the side yesteryear side few weeks, recognize that if the declaration is betwixt an investor in addition to a trader, they are talking yesteryear each other. Stealing from the championship of the bestseller from a few years ago, if traders are from Venus, investors are from Mars, in addition to if i is talking close toll in addition to the other close value, they may both survive right, fifty-fifty amongst vastly different numbers. Twitter tin survive a expert merchandise in addition to a bad investment at just the same time!

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