04 Jul Expensive Always Isn’t Bad…
The road to Shimla on a typical weekend is jammed by cars bumper to bumper. The cost of hotels shoots up. Mall road is overflowing with people. It is no longer fun and this demand no longer seems sustainable.The infrastructure is on the verge of cracking.
In stock market parlance, we say the market is expensive because of huge demand (excess liquidity) but limited growth possibilities.
Alternatively Shimla can have better road and tourism infrastructure, better hotels, better transportation that provide enormous joy to people.
More and more people flock into Shimla. The roads are beautiful and jams have become history.
We zip along and reach the hill station without any hassles in less than an hour. We find great hotels available at decent prices and offering tons of touristy activities at very decent prices.
The experience is awesome that draws even more and more people. Even though prices rise a little people are happy paying for it.
The fun is so enormous that despite the price rise it does not feel expensive. People feel a sense of value and spend even more.
This is how prices get re-rated in the stock market because of better and sustainable profit growth expectations.
Price increases in both instances. However, in the first instance it is an unhealthy rise while the second one it is a very healthy and sustainable increase backed by huge momentum.
Just like an expensive Kashmir trip vs an expensive Switzerland trip. If both were stocks where would you invest? So is expensive always bad.