[madnak]

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One last try. The Bellagio makes a line on football games. They are the best linemakers in the world. Their line is almost always perfect. So even a professional bettor who beats his bookie 56% of the time only picks 50.1% when he faces the Bellagio.

Joe Schmo is barely break even in his opinions. But he is better than the dart board thrower. (This is an important point.)

The Bellagio says the Yankees will win 70% of the time today. Joe Schmo thinks they will win 60%. In other words the Bellagio says that anyone holding a $100 even money bet has an equity worth $40. Joe says it is worth $20. Its TRUE worth is a tad below $40. Maybe $39.50. Change Joe Schmo to Mr Market. (And I would still love to bet that Buffett both agrees with me and doesn't think his words dispute my words)

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The information Joe Schmoe uses to form his opinion is presumably available to the Bellagio. Therefore, the Bellagio and Joe use the same information to reach their conclusions. The Bellagio tends to reach much better conclusions based on the information available. Thus, there is no reason to pay attention to Joe. Any difference between Joe's estimate and that of the Bellagio is likely the result of Joe's error.

Where Joe is correct, the Bellagio will also be correct. Joe's opinion is worthless - unless you're betting against Joe, in which case a large discrepancy between Joe and the Bellagio will indicate that you should put it all in there!

I don't know much about investing, or when to buy and sell, but I think your example here is flawed, David. It's no more likely that the actual value is $39.50 than that it's $40.50.

Very nice thread, makes me want to learn about financial analysis.