When I sell something to a buyer for 500 rupees and receive a 500 rupee note from the buyer, I don\u2019t pause to analyze fiscal deficits, central bank balance sheets, or the long-term purchasing power of the rupee. I pocket the note and move on – confident that, when I buy something, my seller will do the same.<\/p>\n
It’s not like it’s wrong to deep dive into economics. It’s also not like I’m gullible and you can sell me a beachside property in Arizona \/ London \/ New Delhi. It’s just that most people don’t get into measuring intrinsic worth of each and every thing – confidence does the heavy lifting in most transactions.<\/p>\n
Modern life runs less on verification of intrinsic value and more on a chain of shared assumptions and beliefs. As long as that chain holds, life runs smoothly. Break it, and suddenly everyone starts asking questions they usually ignore.<\/p>\n
Consider how often we *don\u2019t* verify things.<\/p>\n
Nobody verifies whether the quantity of packaged food they\u2019re buying in a store weighs exactly 500 grams.<\/p>\n
When people buy an apartment, the sale deed specifies the square footage. Yet hardly anyone shows up with a measuring tape. They just assume that, when they sell the apartment, the next buyer will also not come with a measuring tape!<\/p>\n
When companies factor invoices, banks or NBFCs that provide factoring services rarely validate every single bill with the underlying customer. They run high level checks – names, IDs, patterns – but stop short of full verification. The system works because it usually does. Fun Fact<\/em>: In some countries, bills are not numbered serially but according to a certain pattern – e.g. Mod10 \/ Luhn algorithm in Canada – so that the lender can be sure that the underlying artefact is at least a bill in the first place (see footnote 1<\/em>).<\/p>\n This isn\u2019t irrational. It\u2019s efficient.<\/p>\n Computing intrinsic value in every transaction would be prohibitively expensive. So we outsource trust – to brands, to institutions, to regulations, to market conventions.<\/p>\n Liquidity does the rest. If you know something can be resold at a widely accepted price, you don\u2019t need to independently establish its worth.<\/p>\n Financial markets make this especially clear.<\/p>\n Take stocks. A textbook valuation might say a company is worth $100 per share based on discounted cash flows. But if the stock market price says it’s $200, no amount of intrinsics-based argument will get you the stock at $100. In the moment, ticker is god, price is reality. Intrinsic value may anchor long-term outcomes – but it rarely dictates short-term transactions. C’est la Vie<\/em>.<\/p>\n That’s so 20th century. \u2014 SKR (@s_ketharaman) November 10, 2021<\/a><\/p><\/blockquote>\n\n
\nOver 80% of tech IPOs in USA in 2019 were of loss making companies. Still enough people made money on them.
\nNot many people understand Bitcoin but it’s best performing asset in history.
\nExtrinsics like hype & liquidity outweigh intrinsics in 21st century.<\/p>\n