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I think we will see a bigger correction very soon. Markets crash periodically and we haven't had a crash for a while now. A periodic crash is not uncommon and a

I think we will see a bigger correction very soon. Markets crash periodically and we haven't had a crash for a while now. A periodic crash is not uncommon and actually makes a lot of sense when you think about the high level picture of what really goes on in stock markets. Stock markets are essentially dominated by greed (to get a higher ROI from stocks than through more traditional ways) and this greed leads to an increasing over valuation of assets over a period of time (multiple years). At some point the over valuation is so big that it becomes very visible to investors, at which point they get cold feet and start selling, and then... boom. The markets drop to the point where the majority of investors agrees that the current valuation matches the expected ROI again and therefore stop further selling. After a couple years of conservative trading the markets return to become slightly more optimistic again and the game starts from scratch again. It is a natural cycle and nothing we can do to change, just embrace a crash every 10-20 years or so... http://macromarkets.ie/wp-content/uploads/2016/09/Asset-Prices-GDP.jpg http://macromarkets.ie/wp-content/uploads/2016/09/Asset-Pric...

TekMol 9y ago
stock markets are dominated by greed Greed is "an inordinate or insatiable longing for unneeded excess". I doubt one can show that this is what drives the stock market. What we probably can agree on is that the stock market is driven by the actions of many actors who try to maximise the utility value of the assets under their control. an increasing over valuation of assets We cannot show that assets are overvalued at any time. The value of an asset is very different to every actor. Everybody puts different expectations into the assets they control. Even if we apply some 'simple' mathematical definition like the NPV of future returns, we could not say if an asset is overvalued in regards to that. Because the future returns are unkown. And we cannot say in hindsight either. Because the value of an asset is a statistical function of possible future outcomes. So the actual outcome does not tell us what the statistical function looked like.
- dustinmoris 9y ago
  I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past multiple times and what seems to be happening again. The truth is that investors will always pump as much money into a stock as long as there is still a logical explanation for a positive ROI. However at some point the stock becomes so hot that the general public will also start pumping money into it (with the simple hope of making some quick and easy $), at which point the value will skyrocket even further until there is no logic explanation anymore and it becomes very difficult to justify the value in any logical way... and that's when it bursts. Just look at Bitcoin and tell me I'm wrong...
  - TekMol 9y ago
    I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past We cannot even say in hindsight what was overvalued. We don't know if an asset was overvalued in the past. Because the value of an asset lies in the probability function of the future returns. Which can never be found out.
    - danmaz74 9y ago
      In terms of market value, you can say a financial asset was overvalued at time X if it later decreases a lot in vale, and undervalued the other way around.
      - TekMol 9y ago
        What if it does both as most assets do? Apple was worth $500B in 2012 and $300B in 2013. Does that mean it was overvalued in 2012? Or was it undervalued in 2012 because it is worth $600B in 2014?
        danmaz74 9y ago
        Most assets do both because most assets, most of the time, aren't really/severely* under- or over-valued. But in general, a moving average can help in determining when they were under/over valued. As a counter-example, an example of "extremely overvalued" in my mind would be Enron before the fall. * https://en.wikipedia.org/wiki/Sorites_paradox https://en.wikipedia.org/wiki/Sorites_paradox EDIT: not so much "determining", but "defining" - you can only know it ex-post...

TekMol 9y ago

stock markets are dominated by greed Greed is "an inordinate or insatiable longing for unneeded excess". I doubt one can show that this is what drives the stock market. What we probably can agree on is that the stock market is driven by the actions of many actors who try to maximise the utility value of the assets under their control. an increasing over valuation of assets We cannot show that assets are overvalued at any time. The value of an asset is very different to every actor. Everybody puts different expectations into the assets they control. Even if we apply some 'simple' mathematical definition like the NPV of future returns, we could not say if an asset is overvalued in regards to that. Because the future returns are unkown. And we cannot say in hindsight either. Because the value of an asset is a statistical function of possible future outcomes. So the actual outcome does not tell us what the statistical function looked like.

dustinmoris 9y ago
I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past multiple times and what seems to be happening again. The truth is that investors will always pump as much money into a stock as long as there is still a logical explanation for a positive ROI. However at some point the stock becomes so hot that the general public will also start pumping money into it (with the simple hope of making some quick and easy $), at which point the value will skyrocket even further until there is no logic explanation anymore and it becomes very difficult to justify the value in any logical way... and that's when it bursts. Just look at Bitcoin and tell me I'm wrong...
- TekMol 9y ago
  I never said that we can show that an asset is overvalued, I simply described what actually has happened in the past We cannot even say in hindsight what was overvalued. We don't know if an asset was overvalued in the past. Because the value of an asset lies in the probability function of the future returns. Which can never be found out.
  - danmaz74 9y ago
    In terms of market value, you can say a financial asset was overvalued at time X if it later decreases a lot in vale, and undervalued the other way around.
    - TekMol 9y ago
      What if it does both as most assets do? Apple was worth $500B in 2012 and $300B in 2013. Does that mean it was overvalued in 2012? Or was it undervalued in 2012 because it is worth $600B in 2014?
      - danmaz74 9y ago
        Most assets do both because most assets, most of the time, aren't really/severely* under- or over-valued. But in general, a moving average can help in determining when they were under/over valued. As a counter-example, an example of "extremely overvalued" in my mind would be Enron before the fall. * https://en.wikipedia.org/wiki/Sorites_paradox https://en.wikipedia.org/wiki/Sorites_paradox EDIT: not so much "determining", but "defining" - you can only know it ex-post...