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But there is yet another factor involved here and that is perceived value. Just because something is rare it does not necessarily translate to a high demand. Take a piece of paper and write some gibberish on it, anything. You can be certain that this piece of paper is now unique. There is nothing else like it in this world and no one can make another exactly like it. But I’d like to see you try selling it as a rare object. Now look at Picasso’s paintings. To be honest with you, I don’t see any value in owning any of them. But I would gladly pay a handsome fee for one if someone alerted me to who the real painter is.Why? Perceived value.

The same goes for antiques. My wife pays outrageous prices for antique pieces while to me they seem worthless. In fact they may actually be past generations’ garbage, but now they have perceived value coupled with the fact that they are rare, and thus they demand high prices.

So perceived value is in the eye of the beholder, and eventually even someone like me who perceives antiques as junk may come around to actually see the perceived value in antiques. And when more people begin to see antiques in that light, prices start to climb. No matter what the item is, there is always someone else who may put a higher value on it than you do. And in no place is this concept more evident than in auctions. Have you ever noticed how the prices jump from such low initial bids to such high values? Auctions are where people’s perceived values are put to the test, and the one who bids the highest takes the item home. No one else in the auction valued the item as much as she did.Now she may be viewed as a sucker who paid too much for an item. But who knows, in a year’s time someone else may value the item twice as much as our high bidder and pay for it accordingly.You get the point.

Stocks work pretty much the same way. They are issued as certificates of ownership in a company, and they are originally priced based on …