Intrinsic Value | Robert Wayne Atkins, P.E.

Introduction
House

Intrinsic value refers to the worth of an object based solely on itself. In other words, the object has value because of what it is.

For example, a house has intrinsic value based on what the house is made of, how big the house is, how old the house is, and where the house is located. However, the intrinsic value of a house will not be the same to all people. A person who already has a nice house that completely satisfies or exceeds the needs of his family, would probably not be interested in another house even if the other house were priced a little below its current market value. However, a person who does not have a house and who desperately needs a place for his family to live, would probably be interested in a house that was within his budget and that was priced a little below its current market value.

This article will briefly discuss the difference between intrinsic value, relative value, and imaginary value.

Discussion
Relative value is the worth of an object in relation to similar objects. Relative value is usually a function of the quality of an item, how the item was made, the life expectancy of the item, and what similar but different items are currently selling for in the marketplace. For example, the relative value of a used automobile is usually related to its make, its age, its size, the number of miles on its odometer, its average gas mileage, its mechanical condition, its cosmetic condition, its repair history, and the current actual selling prices of similar automobiles that have those same basic characteristics.

Imaginary value, or illusionary value, is based on what a person falsely believes the object is worth. A professional salesperson earns a living by convincing people that something is worth more than it is really worth. At one time or another, almost every one of us has paid more for an object than the object was worth and we sorely regretted buying that object when we came to our senses.

There are a variety of other ways to discuss value, such as supply and demand (a good harvest year or a bad harvest year), the importance of an object to a person's survival (a gallon of pure water to a person who is dying of thirst), and the emotional appeal of an object to a person (a new fishing boat to a person who enjoys fishing as a sport).

However, the fundamental reason that I am writing this article is to discuss how human greed can motivate a person to make a really bad purchase.

The easiest way to separate a person from his money is to get him to believe that he will "get rich quick" if he will buy something right now before its price goes up another 10% or 20% or 100%.

The tulip bubble began in 1634 and it ended in 1637. Thousands and thousands of people paid an extravagant amount of money for their tulip bulbs because they knew that a lot of very, very intelligent people had invested a lot of their money in tulip bulbs, including Sir Isaac Newton (proposed the three laws of motion, the principles of modern physics, the universal law of gravity, and the principles of infinitesimal calculus). When the tulip bubble burst in 1637 nobody wanted to buy a tulip bulb at any price.

During the roaring 1920s millions of people bought stocks because they believed they could sell those stocks for a quick profit in a very short period of time. When the stock market crashed in 1929 almost all of those people lost all the money they had invested in the stock market.

The dot-com bubble began in the 1990s and it ended in 2001. Millions of people bought stocks in computer companies and internet companies. But when the dot-com bubble burst in 2001 those stocks were either worthless or they were only worth a few pennies for every dollar that those people had invested in those stocks.

In each of the above bubbles it is estimated that about 1% of the people got rich but 99% of the people lost everything they had invested.

The reason that people lost money in each one of the above bubbles is because of human greed. The lure of a "get rich quick scheme" appeals to our basic human nature. And only a limited number of us can avoid getting lured into participating in one of these "get rich quick" bubbles.

Conclusion
On November 15, 2024 millions of people all around the world are being lured into investing in "Bitcoin." The reason is simple. Bitcoin used to sell for about 67,000 but it dropped to about 16,000 and now it is about 90,000. The internet is currently filled with advice on how you can "get rich quick" if you act today and buy some Bitcoin before the price increases again.

I have never been able to predict the future. And I do not know what the future price of Bitcoin will be. But I do have control over my instinctive human emotion of "greed" and I intentionally made a decision a long time ago that I would not participate in the current Bitcoin "bubble." I refer to it as a "bubble" because I understand the difference between intrinsic value and imaginary value. An item does not increase in price from 16,000 to 90,000 in a short period of time based on its "intrinsic value."

In the 1960s my father shared some advice with me that he had heard about the stock market: "Bulls make money and bears make money but pigs get slaughtered."

Respectfully,
Grandpappy.

Grandpappy's e-mail address is: RobertWayneAtkins@hotmail.com