Imaginary Money

The valuation of any listed stock has 3 components i.e. the true economic value (based on the current business performance), the future potential value (based on future plans / cash flow) and of course what we know as the ‘speculative / imaginary money’. The global financial crisis has taught us that when the ‘speculative / imaginary money’ becomes the major component, then the ‘casino’ effect starts and it begins to collapse like a pack of cards.

Immediately after the global financial crisis, a child asks “Who took all this money that people claim they lost?” Perhaps, it never existed!  

When Albert Eisenstein said imagination is more than knowledge, I am sure he did not intend it for Hedge Funds or Day Traders!