 Often people invest based on a prediction the price of their chosen asset will eventually rise. This must be the case, otherwise they’d just wait until the price drops to buy. Their predictions are usually based on a range of information sources, some credible, some not. But is it possible this information is already factored into the price? Let me give an example.
In the lead up to the Commonwealth Games in 2018 I was speaking to someone who was planning to buy property in the host city. When I asked why, they looked at me like I had two heads. The Commonwealth Games was coming to town, infrastructure spending would boom and money would flow into the local economy which in turn would increase house prices. At the time I think I tried to get my point across with a convoluted explanation about efficient market theory. In hindsight, I should have responded with this simple question: is it possible that information is already factored into the price? If someone decides to sell a house in the host city, it’s likely they’re aware the Games are coming to town. Chances are they know infrastructure spending is going to increase and money is going to flood into the local economy. Before the host city was decided maybe they would sell for $350,000. Now, maybe they think it’s worth $400,000. So do you buy it for $400,000? It might still make sense to do so if you think it’s still undervalued. But don’t kid yourself you have the inside scoop. The person selling that property has access to all the information you do. This is true of most situations. Unless you know something the general public doesn’t, this kind of information doesn’t really provide an advantage. Keen to invest? Before you make an investment decision based on future-gazing, ask yourself: is it possible the information is already factored into the price? Written by Dallas Davison. Comments are closed.
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