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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 happeni

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

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...