EVERYTHING You need to understand Markets

Hedge Fund Question:

You are being interviewed by Ackman while the CNBC TV scrolls in the background. Suddenly at trader screams that Valeant is getting hit–THERE ARE more sellers than buyers!   Ugly.

A technical analyst runs into the office yelling that he accidently read the chart upside down–Valeant is a SELL!

Ackman turns to you with a worried expression and asks you to confirm or deny the trader’s statement. What do you say?  You will be thrown from the 20th floor if you get this one wrong.

A SERIOUS QUESTION:

Is there one price or two prices at any one time in the marketplace?  A transaction occurs at one price but what determines which of the two prices at any one time?

 

8 responses to “EVERYTHING You need to understand Markets

  1. One price only..the price at which buyers and sellers agree to transact.. to quote a financial sage: the essence of investing is to have market agree with you… later

  2. I’d say to Ackman, “Who cares what the trader says?”

    There is only one price for any given thing: what one will accept in exchange for that thing.

    If I own a stock, the price is what I will accept in exchange for a given unit of that stock. Typically, this is a certain amount of dollars.

    If you want to buy my stock, the amount of dollars you’re willing to accept in exchange for it is not a price, concerning the stock. Rather, the price is what you’re willing to accept in exchange for a given unit of dollars. In this case, it would be a certain amount of stock.

    A transaction occurs when one of the parties finds the other’s price to be acceptable. By “acceptable”, I mean that the value of the thing received is greater than that of the thing that is exchanged away.

    • Also, the value received is greater than other thing that could be exchanged for the same thing being exchanged away.

      • *any other thing

        • There are ALWAYS two prices in a market: a BID price and an OFFER price. I will pay $9.50 or I will sell at $10.

          The direction of prices depends upon the offer falling to meet the bid price or vice versa.

          ALWAYS buyers equals sellers or buying equals demand AT A PRATICULAR price.

          Ackman’s trader needs to be hurled from the 20th floor.

  3. Depends on your timeframe. For example, If short-term time frame (day trader) = Sell. Medium time frame (1-2 years) = Hold. If long-term time frame = Buy

    If buyer and seller agree on a price = One price. If buyer and seller don’t agree on a price = Two prices or No price

    What determines which of the two prices at any one time? The marginal buyer or seller?

  4. I want to argue that there are many prices in the market. Every stock is available for the right price. We only know the prices of the stocks that are put out there for sale.

    • I think you are talking about RESERVATION DEMAND.

      If you bid 10 for a stock there may only be a small offer at 10.25. But bid $20 and stock is offered that was kept in the safe.

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