4 ms·

How is 20% not a large fluctuation? That doesn't make sense. If you want absolute numbers it's $130 Billions. Almost worth 4 Twitters.

metamicah 8y ago
That 20% drop brought its stock value back to where it was a year ago, which was an all-time high for it then. Investors that have held it for longer than a year can still sell it at a profit.
- what_ever 8y ago
  But no one is talking about investors holding stocks for more than a year in this comment chain. That's tangential to this comment chain, sorry. And to your point, investors could have sold for over 25% of profit as well if they had sold it earlier today. So I still stand by saying that this is huge change. Besides, this thread is not about long term, just invest in index funds so I just fail to see the point.
  - metamicah 8y ago
    The comment you responded to specifically says "in the context of the unlimited future of the company" which I took to be much longer than a year.
    - what_ever 8y ago
      Okay sorry, I may have mixed things up.
    - perl4ever 8y ago
      I was coming from the perspective that there is really no such thing as a short term investor, because when you sell, you are dependent on what people think the long term prospects of the stock are.
perl4ever 8y ago
Without getting into any theory about how much stocks should vary, if you choose a bunch of random stocks and track them for a few months, I think you would find out that 20% is not a lot. Stock prices should come with uncertainty bars, like scientific quantities, but there is of course no standard way to calculate and denote that.
- hendzen 8y ago
  Of course they have uncertainty bars. They are called stock options.
  - perl4ever 8y ago
    That's not what I mean. Options tell you something about what people expect to happen to prices in a given timeframe, but that's not the same as the uncertainty in the underlying value. For example, say I have an early stage biotech company that's losing money. The value is somewhere between zero (if they go out of business before becoming profitable) to a fairly large number if everything goes perfectly. Options have an expiration date, and probably the longest dated ones on a lot of stocks are under 2 years. That's a pretty short time period. I just looked at an example, and the at-the-money calls and puts were about 40% of the price of the stock with expiration around 1.5 years out. That's not at all where I would put an uncertainty range, because at any time the stock can suddenly reflect prospects beyond 1.5 years in the future.
    - hendzen 8y ago
      Options are one of the best tools we have to price uncertainty in the value of publicly traded companies. The option prices allow you, using Black Scholes, to calculate an implied volatility that can be used quite similarly to the error bars on a measurement. The EMH would say that a company's stock price accurately reflects all current knowledge about a stock's underlying value. So from the point of view of an investor in publicly traded companies, a stock's price and its underlying value are the same thing. Options have an expiration date because as the further you go out the more uncertain things are, and the harder it becomes to make a market in options in a way that (a) won't result in a high chance of losses and (b) will have someone actually willing to buy them. That's why you don't see 10, 20 or 50 year options. That doesn't hurt their value for pricing uncertainty because as options expire, new ones are minted. Therefore, you can always use them to price the uncertainty of the price to the next quarter, the next 6 months or the next year.

metamicah 8y ago

That 20% drop brought its stock value back to where it was a year ago, which was an all-time high for it then. Investors that have held it for longer than a year can still sell it at a profit.

what_ever 8y ago
But no one is talking about investors holding stocks for more than a year in this comment chain. That's tangential to this comment chain, sorry. And to your point, investors could have sold for over 25% of profit as well if they had sold it earlier today. So I still stand by saying that this is huge change. Besides, this thread is not about long term, just invest in index funds so I just fail to see the point.
- metamicah 8y ago
  The comment you responded to specifically says "in the context of the unlimited future of the company" which I took to be much longer than a year.
  - what_ever 8y ago
    Okay sorry, I may have mixed things up.
  - perl4ever 8y ago
    I was coming from the perspective that there is really no such thing as a short term investor, because when you sell, you are dependent on what people think the long term prospects of the stock are.

perl4ever 8y ago

Without getting into any theory about how much stocks should vary, if you choose a bunch of random stocks and track them for a few months, I think you would find out that 20% is not a lot. Stock prices should come with uncertainty bars, like scientific quantities, but there is of course no standard way to calculate and denote that.

hendzen 8y ago
Of course they have uncertainty bars. They are called stock options.
- perl4ever 8y ago
  That's not what I mean. Options tell you something about what people expect to happen to prices in a given timeframe, but that's not the same as the uncertainty in the underlying value. For example, say I have an early stage biotech company that's losing money. The value is somewhere between zero (if they go out of business before becoming profitable) to a fairly large number if everything goes perfectly. Options have an expiration date, and probably the longest dated ones on a lot of stocks are under 2 years. That's a pretty short time period. I just looked at an example, and the at-the-money calls and puts were about 40% of the price of the stock with expiration around 1.5 years out. That's not at all where I would put an uncertainty range, because at any time the stock can suddenly reflect prospects beyond 1.5 years in the future.
  - hendzen 8y ago
    Options are one of the best tools we have to price uncertainty in the value of publicly traded companies. The option prices allow you, using Black Scholes, to calculate an implied volatility that can be used quite similarly to the error bars on a measurement. The EMH would say that a company's stock price accurately reflects all current knowledge about a stock's underlying value. So from the point of view of an investor in publicly traded companies, a stock's price and its underlying value are the same thing. Options have an expiration date because as the further you go out the more uncertain things are, and the harder it becomes to make a market in options in a way that (a) won't result in a high chance of losses and (b) will have someone actually willing to buy them. That's why you don't see 10, 20 or 50 year options. That doesn't hurt their value for pricing uncertainty because as options expire, new ones are minted. Therefore, you can always use them to price the uncertainty of the price to the next quarter, the next 6 months or the next year.