Last December I walked into a charity shop and spotted a plush cow toy on the shelf for the princely sum of £1.50
(That’s $2.05 for my American friends)
Perfect for Ivy, I thought (she's 18 months old and at that magical age where a cardboard box is as entertaining as a £50 Fisher-Price monstrosity).
So I bought the cow.
Proudly walked through the door back home…
Held up my bargain find like Simba on Pride Rock.
My wife glanced at it for exactly 0.3 seconds and delivered her verdict
"You overpaid. That's worth 75p at most."
My natural response what that you can’t buy anything for £1.50 these days… a can of Coke at the train station costs more than that.
But apparently this £1.50 cow was bordering on financial recklessness.
Here's what's funny though...
We could never agree on a "fair price" for that cow.
To me, it was worth £1.50 because Ivy would get joy from it (and let's be honest, anything that keeps a child entertained for more than 30 seconds is worth its weight in gold).
To my wife, it was worth 75p because it’s second hand and we don’t know where it’s been…
Same cow.
Same condition.
Two completely different valuations.
And really...
This happens with every single company valuation too.
You'll never get two analysts to agree on what a company is "really worth."
Sure, they'll both use discounted cash flow models (DCF).
They'll both project future earnings, pick a discount rate… and calculate a "fair value."
But their numbers will be wildly different.
Why?
Because DCF isn't some objective truth machine.
In fact, it's built entirely on assumptions.
What growth rate should we use? 12% or 15%?
What discount rate reflects the "right" level of risk? 8% or 12%?
How long will this growth last? 5 years or 7 years?
Change any one of these assumptions by a few percentage points, and suddenly your "fair value" swings by 30-40%.
One analyst thinks Tesla is worth $580 per share.
Another thinks it's worth $180.
Just like me and my wife staring at a stuffed cow.
There's no "correct" price for anything.
There's just what you think it's worth... and what someone else is willing to pay.
And the stock market is nothing more than millions of people disagreeing about stuffed cows all day long.
Some think Palantir is expensive at current prices while others think it's a bargain.
And the cool part? They're both right… kind of.
So when someone tells you a stock is "overvalued" or "undervalued," what they're really saying is:
"Based on MY assumptions about the future, I wouldn't pay this price."
But that doesn't make them right.
It just makes them one side of the trade.
Oliver
P.S.
Ivy loves the cow. She cuddles with it all the time.
My wife still thinks I overpaid.
P.P.S.