Chapter Five How to Buy Low and Sell High
Markets are dependent on buyers and sellers. The price in the market is the price at which buyers match sellers. This is how capital markets establish the price of companies' shares. If markets had complete and accurate information, this price would be equal to the “fundamental” or “true” value of the company. But they rarely possess such perfect information.
Markets therefore create opportunities to buy businesses for less than they are worth and to sell businesses for more than they are worth. Capital markets logic suggests that companies should buy businesses when the capital markets are undervaluing them, and sell businesses when capital markets are overvaluing them: in other words, buy low ...
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