The difference between change in value and change in price

Letter # 87 | 17 May 2022 |

There are three stages in a market correction. First is denial: ‘stonks only go up, let the Fed do its worst’ . Then comes the reduction in “value”: higher interest rates impact high duration equities differently from regular cash flow business, and the last stage is fall in “prices”: “Equities are a casino, get me outa here”.

In the last stage, stocks fall even when their value hasn’t reduced. Ergo, the difference in value and price might seem subtle, but it is critical. In our article in ET, we show how the impact of interest rates hike differs, and why correction is price that follows fall in value offers large opportunities (which is the case in markets today). Also, examples of how dislocated earning growth and share prices can get for extended periods might surprise a few investors. Read here: stock market: Markets today offer valuable lessons in differences between change in value and change in price – The Economic Times (indiatimes.com)

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