We are constantly presented with ads and offers for different types of products and services every day of our lives. Some of them are good offers of great value, some of them are OK and some of them are almost pure scams that are not worth 1 cent.
Paying for overpriced items is never good - that is unless paying a lot of money makes you feel good.
In investing and in life generally, we want to pay for assets, products or services that are at least at a fair price in order for those to be valuable in the longer term.
Running your life is not much different than running your investments and many investment principles can be adopted very successfully to real-life situations that will help to improve the long-term quality of your life. There is no reason to buy overpriced items as that is certainly the surest way to drain your wallet faster than you can imagine.
In trading, we are used to evaluating whether a particular asset or currency pair is cheap or expensive. Based on the conclusion we later make trading decisions which result in either a profit or a loss. In real life, the effects of our purchasing decisions are not evident as clearly or as quickly as in trading, but you can be sure that they are real!
Finding out roughly what is the fair price of a purchase is important information to know before making a decision. The fair price acts as our anchor in determining what we are comfortable with spending on this product/asset. Not knowing the fair price makes us susceptible to paying too much for low-quality offers and even for outright frauds.
Unsurprisingly, whenever we consider purchasing something there are 3 possibilities in terms of its fair price, and the same is true for trading and investing.
- The price can be above the fair price, at (or around) the fair price or it can be below the fair price.
For example, you may be looking to buy a house. A lot of times properties can be overpriced.
Maybe the seller is simply asking for a price that is way above the fair value for that house or an overheated housing market may be the reason, in which case all properties in that city/area will be expensive.
Whatever the reason, it’s a good idea to find out what is the fair price of this property before making the purchase. Of course, for important buying decisions, it’s also wise to hire a professional if you are not competent or cannot determine the fair price on your own.
Here are some suggestions to help you to filter out better deals when you need to making buying decisions:
- Don’t believe everything you read/hear in the ads. Most of the time it’s all nicely packed information that only displays the good qualities. Finding the fair price of a product is much about distinguishing misleading facts from the truth.
- Do a research on your own and try to understand the matter in order to be better able to determine what is important about this product/service.