Mathematics of prices and values

Why this article

This article does not claim to be analytic; rather, it is an attempt to find a starting point in the discussions, some common place with which you can agree, and from which you can dance further.

Prehistory

Recently, quite a lot of interest is caused by articles related to forecasts of the prospects for cryptocurrency.
The explosive growth of courses, of course, attracts enormous attention. It can already be called the next gold rush.

There are stories of the same type, about different billionaires, most often, perhaps, it is attributed to Warren Buffet and George Soros.
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Once he was driving in a taxi on the eve of a big crisis, and in a conversation the taxi driver started talking about stock prices, asking for advice. Billionaire thought: if the taxi drivers came to the market - I should go with him.

Of course, the crisis did not break out immediately, many more taxi drivers managed to jump on the train going into the abyss, and some even managed to get off it, slightly approaching the wealth.

Subject of holivar

There are now many comments in the comments about the nature of money, different economic and financial models, the essence of inflation and deflation and their impact on the world and national economies.

Almost all the topics that are being discussed are discussed many times in different forums (it is enough to raise the archives of a variety of trading forums). There are a lot of popular myths, but to consider them without holivar is basically impossible.

But the essence of all these myths is that
a) there is a desire to explain the processes taking place
b) there are simple but irregular models, each of which contains certain assumptions
c) conclusions that I would like to draw do not follow from these models directly, and often go beyond the made assumptions

However, they are based on quite understandable and reasonable mathematics. This is the mathematics of price and value.

The most critical assumption of most simplified models from trade textbooks

What is value? Value is what a person wants. And the price is what a person is willing to pay for his desire.

The whole complex picture of price dynamics lies in the interpenetration of only two consumption patterns on the set of agents.

There are values ​​of a regular nature, consumer values. In them, demand grows with a decrease in price with equal characteristics.

There are investment values, savings values. In them, demand grows with an increase in value with equal characteristics.

In textbooks, price is often equated to value and this causes serious confusion in models.

What to do?

Rewrite textbooks? Hardly. Most people just want to find some kind of support for themselves in this strange world of financial success and failure.

The cruel truth lies in the fact that if you are not a professional trader, who laid down his life and a lot of money to study the markets (both in theory and in trade), then you should be taboo on naive attempts to regularly earn more than 20% per annum on your assets.

And this means that if something promises you a return of 200% - do not risk more than 10% of your working capital. That is, the maximum that can be put is the monthly salary.

And if you are not experienced in stock trading and other arbitration, then start with risk management. There are a lot of literature for beginning investors.

It may seem that cryptocurrency is a new opportunity, crossing out the existing rules of the game. There may be many ideas and excuses for this.

But there are two basic principles on which practically the whole idea of ​​funds (concentration of capital) rests. These are principles of greed and fear.
Absolutely not important assets and their nature. The balance of price and value is entirely determined by these two principles. Desire for time and fear of being late.

Regardless of other people's tips and ideas, everyone manages his own earnings. And if you do not confuse a gamble with productive labor, there will be no big problems.

Cryptocurrencies are a great opportunity. But every great opportunity contains great risks.
In poker and similar games there is a saying. If you don't know who is the weakest at the table, then you are the weakest.