Thanks for the insights guys. I can't help wonder if it's only thermionic that gets what he really means? I think that my cousin is asking what is there to guarantee that an undervalued stock will ever become fairly valued. What incentive is there for buyers to purchase the stock up to this point? My POV, rightly or wrongly is as follows;
I think the only incentive to buy stock we view as undervalued is that everyone believes in the unwritten and unproven rule , that everything must return to true value. We believe market forces must soon price a stock at what it is really worth by way of the stock's revenue, capital, assets, cash on hand, and the like.
The more I think about it, the more I conclude that this is a fallacy. Why should the market cap = the stock's revenue, capital, assets, cash on hand, and the like. That in itself is not incentive enough to buy in. Not when you get nothing for doing so, other than a paper saying you own only 0.00000001% of the company. The only real reason we buy at this end of the market is to sell it onto someone else as the SP rises. We just hope the unwritten and unproven rule becomes fact. But the undervalued stock will only ever be worth what the next guy is willing to pay for it. What if they think that is zero?
Personally, I believe the most important factors into getting people to invest in the market (particularily this end) are things like very low interest rates, very high standard of living, high disposable incomes etc. If there is any kind of economic downturn or uncertainty, people will not invest into undervalued stocks, but rather exit these stocks, no matter how undervalued they are. Should an economic boom time not show up for ages, the currently undervalued stocks turning profits will become even more undervalued, and many of these companies will disappear.
Note* The above makes me wonder if I should pull out of the market all together. LOL Should I follow the sheep eternally in assuming the unwritten and unproven rule must apply?
