Analogy for Value Investing

I am trying to work out an alalogy on value investing compared with those traders who used to travel in caravans. (I got this idea from reading The Walking Drum by L'amour).

So the idea was that a trader would start out with a small amount of capital, goods or money. They would buy the things that were made where ever he currently was to trade in the next place the caravan stopped. The trader would sell the goods and buy other goods that were cheap in this town to sell in the next. By doing this over and over again, the trader would amass wealth.

The better the trader was as recognizing bargains or opportunities to buy low and sell high, the more quickly he would get rich. The primary way of increasing the value was by moving the goods from a place where the goods are cheap to where they are expensive. I think of this as "space arbitrage".

Value investing is the same thing. Finding goods (stocks) which are cheap and selling them when they are fairly valued. The big difference is that instead of having the goods/stocks increase in value because of moving them, it is in the change in the market's value of the property. I think this is a kind of "perception arbitrage".

I don't know that this is a perfect analogy and am still working on it.

Originally Posted 8/26/05