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October 20, 2011

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I agree wholeheartedly with this post, but I propose one exception for goods: Loss leaders.

It obviously doesn't apply to stocks, but items may be discounted much further than their price (what people would buy them for) to entice customers to come in and buy other goods.

I am thinking Black Friday deals, or even Video-game consoles, where little to no profit is made on the hardware itself, with an expectation that games (software) with higher profit margins will make up for the upfront "discounted" price.

Different strategies lead to different ways of thinking about pricing. Supply/Demand and costs might imply a profit-maximizing equilibrium of $400 for the console, but when taking into consideration the games Companies bite the bullet upfront to maximize the profit on the complementary goods they offer.

Great post, great blog, keep it up. Greetings from Rio de Janeiro.

MMelissinos

For trend-followers, price = market value.

Kent @ The Financial Philosopher

@ Pedro:

Yes there are factors to consider, both on the seller side and the buyer side. There are various motivations to sell and various motivations to buy.

Greetings back to you from Mount Pleasant, South Carolina!

@MMelissinos:

I agree, which is why I added the additional thoughts at the end of the post. You say it better: For trend-followers, price equals market value. However, market value may not match the individual's (your) value.

Depending upon several factors, such as holding period, buying a stock perceived by the market as "over-priced," can still be a good decision.

Personally, I'm almost entirely passive in my approach, especially for my clients. "Beating the market" is easier when you're not trying, just as happiness can be "found" easier when not looking...

Thanks for adding your thoughts...

Kent

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