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Price and value are not the same thing

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By Michael O’Connor

To understand markets, you first have to realise that 'Price' and 'Value' are not the same thing.

The major indexes continued to trade relatively flat in recent days. The vast majority of Stocks struggled to eke out gains as a lack of clear market catalysts kept institutional investors on the sidelines, while retail traders fuelled the ongoing meme stocks rally. As social media hype pushes the likes of AMC, GameStop and Bed Bath & Beyond 'to the moon,' the crypto market continues to trade in the opposite direction, with all major crypto names recording double-digit losses early in the week.

The short squeeze is back

Earlier this year, GameStop saw its share price run from $19 to $483 as the Reddit retail traders banded together to punish the wall street speculators. In recent weeks, the short squeeze is back in fashion. The new king of meme stocks is AMC Entertainment. Recently on the brink of bankruptcy, the movie theatre chain's stock is up more than 2,000% this year after another roller-coaster week.

While this phenomenon is hard to comprehend at times, in simple terms, the Internet has brought forth the age of virality, and the stock market is not immune.

Younger generations who grew up on the Internet are now having a significant impact on specific companies. Their risk tolerance seems to be much higher than previous generations, and their willingness to band together to support a viral trend knows no bounds.

While these short-term individual stock surges may not significantly impact markets over the longer term, the meme stock craze is here to stay as the gamification of investing becomes a powerful force in an era of social media dominance.

All this speculation raises a lot of questions from investors. Nervous onlookers wonder if markets are broken, worried about how such 'mindless risk' can undermine the validity of the market as the 'meme stock vigilantes' blatantly disregard traditional valuation metrics.

All this recent 'mispricing' has highlighted one of the most common investing misconceptions.

To understand markets, you first have to realise that 'Price' and 'Value' are not the same thing.

Value is driven by cash flows, growth and risk. Of course, you can disagree about what those cash flows look like or how they are calculated, but the fundamental drivers of value remain the same.

Price, on the other hand, is simple economics 101. Demand vs. Supply. What drives demand and supply is typically mood and momentum. As a result, stock prices do not have to make rational sense at any one moment in time as they are driven by a myriad of human emotions.

Mood and momentum

For me, the current market conditions are reflective of a pricing market being driven by mood and momentum. That isn't to say that this is necessarily a bad thing. Markets will always reflect human behaviour in some form, and sometimes this behaviour will be more pronounced as price and value push in different directions.

This recent price volatility doesn't mean you have to change to momentum and memes when selecting your next investment. While the FOMO can be unbearable at times. The truth is, the value factors of cash flows, growth and risk are what ultimately drive markets over the longer term.

For more investing insights visit www.theislandinvestor.com.

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What is an Engineering Statutory Inspection?

By John Healy of Healy Insurances Equipment owners and managers can typically have a diverse, complex and large number of plant and equipment types under their direct control and or supervision. With this comes the legal responsibility to ensure it is safe and that the necessary Health and Safety requirements are being satisfied. An Engineering […]

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By John Healy of Healy Insurances

Equipment owners and managers can typically have a diverse, complex and large number of plant and equipment types under their direct control and or supervision.

With this comes the legal responsibility to ensure it is safe and that the necessary Health and Safety requirements are being satisfied.

An Engineering policy will ensure that you satisfy the requirements of the Health, Safety & Welfare at Work legislation. Here is a brief outline of some of the most common plant and machinery that falls under this legislation.

* Forklifts and teleporters should be inspected and certified every 12 months
* Vehicle lifting tables should be inspected and certified every 12 months.
* Lifting plant such as hoists and goods/passenger lifts have an examination frequency of six months. Other machinery which are not lifting machines but have a lifting function, for example manual pallet trucks, excavators etc also require inspection under the health and safety acts.
* Steam boilers, steam receivers and air receivers should be inspected and certified every 26 months. Hot water boilers and café boilers should be examined every 12 months.

As you can see there are many sectors that are impacted by this legislation from construction and manufacturing to the hospitality industry, agri sector and motor industry. It should be emphasised that if there is an accident involving an item of plant an up to date certificate will be requested by both the Health and Safety Authority (HSA) and the liability insurers. It is also vital to say that routine servicing of plant and machinery does not replace the legal requirement to hold up to date certification.

There are a wider range of insurers and inspectors who offer this service. It is crucial to get the best possible professional advice as policy wordings and covers can differ greatly.

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What to look out for when viewing second hand homes

By Ted Healy of DNG TED HEALY After spending so long saving for a mortgage and filling in countless application forms, you are now ready to begin your house hunting in earnest. Set yourself a budget and have a look to see what is available in your desired locations within that budget. Viewing appointments can […]

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By Ted Healy of DNG TED HEALY

After spending so long saving for a mortgage and filling in countless application forms, you are now ready to begin your house hunting in earnest.

Set yourself a budget and have a look to see what is available in your desired locations within that budget.
Viewing appointments can be arranged via a telephone call or a simple email to the selling agent. When making the appointment make it clear that the mortgage is in place and you are ‘ready to go’.

This week we will deal with viewing second hand homes and what to look out for on that first property viewing.

When you arrive at a house, you’ll get a general feel outside of how well it’s been maintained. Arrive early and study the exterior of the property before going in, and have a glance at neighbouring properties. This will help you to get your bearings before continuing with the viewing.

If viewing an older house, a musty smell is the first red flag for signs of damp. Also be wary of the smell of fresh paint; was this done to simply freshen the property up or what is it covering up? Is paintwork bubbling or flaking?

Take note of any wall cracking; hairline cracks in walls and ceilings are generally fine, but if you can spot a crack from the other side of the room, then it’s probably big enough to be concerned about.

In older houses, take a good look at windows and roofs. Window frames can slope downward if there are poor ground conditions underneath, and the roof of the house can sag in too.

Is there room to extend? If you are lucky enough that there is have a look for external manhole covers; it gives a good indication of the drainage and pipe layout which may complicate a future extension.

Don’t be afraid to ask the nosy questions; why is the house for sale? How long has it been on the market? How long have the current owners resided there? Has the house been rented out frequently? How many times has it changed hands in the last decade? Have there been any refurbishments? Has it been rewired/replumbed? Who are the neighbours? What is included in the selling price?

It is a good idea to take photos (with the agents consent) or videos as this will help you remember the property after you have returned home.

And finally, don’t be afraid to ask for more time. Spend as much time as you think you need to and don’t hesitate to request a second viewing.

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