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It's interesting to me how "value" seems to work - nothing has been physically destroyed, the products still exist and in fact they are still being made; the al

It's interesting to me how "value" seems to work - nothing has been physically destroyed, the products still exist and in fact they are still being made; the already purchased capital (fixed and variable) is still there - so what's been lost? Is it a purely speculative quantity? If so, shouldn't we ask why we are attaching so much significance to something which has very little bearing on what we, as humans, do: production?

SolarNet 8y ago
I hear you. But the point of the stock market is not to produce things, it's to oversee the allocation of resources to other market sectors (which actually do produce things). To make a computer analogy it's sort of like an operating system scheduler, it uses economic resources to better allocate economic resources. Value here is a proxy for predicted success which then translates to access to resources. Not directly, but markets with lots of predicted success then have access to investor capital. Also companies can own their own shares, and often do use those shares to get access to new capital, and companies can be purchased by larger companies, giving them more capital to work with. I agree it's pretty stupid, but it works. Check out prediction markets for example. That's not to say that it's efficient by any stretch, but allocation of resources is NP hard, and this algorithm works well with humans.
- rosser 8y ago
  > I agree it's pretty stupid, but it works. As capricious as markets are, that's a pretty loose definition of "works". All too often, equity markets are just a force multiplier for herd mentality, and end up being actively antithetical to actual value and resource allocation.
  - Matticus_Rex 8y ago
    Antithetical as compared to what? Markets are imperfect, but consistently drive innovation and improvement that benefits consumers. What's your better alternative?
    - rosser 8y ago
      I wasn't aware I had to propose a better alternative in order to be allowed to offer a critique.
      - Matticus_Rex 8y ago
        "Man, it really sucks that we only eat if we harvest food." - early man
        rosser 8y ago
        I'm sure that's quite clever, but it's utterly orthogonal to my point.
        Matticus_Rex 8y ago
        Not really. Whether something "works" or not is a relative thing. If it works really well compared to all the alternatives, it's not a loose definition of "works." Yes, markets suffer from imperfect information and various other ailments. You can find issues with the solutions to all problems, and while it's occasionally interesting to talk about those problems, the real question is whether you can find better solutions.
  - nostrademons 8y ago
    "In the short run, the stock market is a voting machine. In the long run, it's a weighing machine." -- Benjamin Graham One other property of markets is that they're very good at transferring wealth from those who get caught up in the herd mentality to those who do their own research and hold their own opinions. This may be bad for wealth inequality, but it does make them self-correcting when it comes to human emotions.
zeroname 8y ago
What has been lost is confidence. High stock valuations boost the wealth effect. This has a real impact economic activity. It's not just NVIDIA, a lot of tech stocks have tanked and the market in general is close to turning into a bear.
regularfry 8y ago
It's a bad headline. It hasn't lost half its value. It's lost half its price.
- fermienrico 8y ago
  No, it is not. Value? Price? You're confusing the matters. In corporate finance, valuation has a specific meaning. In this case, lost half of its value is correct; even better would be "market value".
  - TuringNYC 8y ago
    If we want to be really specific, hasn't only NVIDIA equity lost half the value. I'm pretty sure other portions of the capital structure are largely unblemished.
    - kgwgk 8y ago
      A couple of billions of debt (which could be paid easily with the cash in hand) are completely irrelevant relative to the change in market cap.
  - dahart 8y ago
    Personally I don’t think the parent comment is confused. The stock lost half it’s value, but the company did not. Book value is the term for assets minus liabilities, so “value” without qualification tends to imply all types of value at once. The term “company value” used at the end of the article might even tend to imply more book value than market value to the average techcrunch reader. I suspect the author intended to conflate them in order to paint a picture that is more negative than the real story. He definitely conflated market value with book value when he wrote “Nvidia is proving that an otherwise strong technology business can disappear in the blink of an eye.” That line is more or less pure hyperbole.
drag0nballz 8y ago
Part of the worry is all the used GPUs that are going to come on the market since it doesn't make sense to mine anymore (or less sense). Their core business will be depressed until that is worked through
starpilot 8y ago
"Value" is just the price someone is willing to pay for something, it doesn't have to be tangible. Supply & demand, nothing more. Look at art.
- pbhjpbhj 8y ago
  No, value is much more nuanced. Example, people can value something very highly but not have funds to buy it, someone who can afford the price easily can value something as being of little worth, but due to their wealth they can afford it. You appear to be confusing price, ability to pay, and value. Do look at art. You can buy a hugely influential piece of art and not value it at all, you buy it as an investment but don't care about its innate qualities, its influence on the art world (directly, only indirectly by the price that confers) or it's cultural worth.
twblalock 8y ago
> If so, shouldn't we ask why we are attaching so much significance to something which has very little bearing on what we, as humans, do: production? Production is what most humans spend their working days doing or supporting or contributing to. In the case of company value, investors care not only about what the company is worth today but also about what it will be worth in the future. It makes sense that lower sales result in a lower stock price despite the fact that the products and current capital are unchanged.
loeg 8y ago
Market cap is a predictive valuation of future income, more or less. The fact that it has gone down reflects negative investor sentiment about future income, not that they had a warehouse fire.

SolarNet 8y ago

I hear you. But the point of the stock market is not to produce things, it's to oversee the allocation of resources to other market sectors (which actually do produce things). To make a computer analogy it's sort of like an operating system scheduler, it uses economic resources to better allocate economic resources. Value here is a proxy for predicted success which then translates to access to resources. Not directly, but markets with lots of predicted success then have access to investor capital. Also companies can own their own shares, and often do use those shares to get access to new capital, and companies can be purchased by larger companies, giving them more capital to work with. I agree it's pretty stupid, but it works. Check out prediction markets for example. That's not to say that it's efficient by any stretch, but allocation of resources is NP hard, and this algorithm works well with humans.

rosser 8y ago
> I agree it's pretty stupid, but it works. As capricious as markets are, that's a pretty loose definition of "works". All too often, equity markets are just a force multiplier for herd mentality, and end up being actively antithetical to actual value and resource allocation.
- Matticus_Rex 8y ago
  Antithetical as compared to what? Markets are imperfect, but consistently drive innovation and improvement that benefits consumers. What's your better alternative?
  - rosser 8y ago
    I wasn't aware I had to propose a better alternative in order to be allowed to offer a critique.
    - Matticus_Rex 8y ago
      "Man, it really sucks that we only eat if we harvest food." - early man
      - rosser 8y ago
        I'm sure that's quite clever, but it's utterly orthogonal to my point.
        Matticus_Rex 8y ago
        Not really. Whether something "works" or not is a relative thing. If it works really well compared to all the alternatives, it's not a loose definition of "works." Yes, markets suffer from imperfect information and various other ailments. You can find issues with the solutions to all problems, and while it's occasionally interesting to talk about those problems, the real question is whether you can find better solutions.
- nostrademons 8y ago
  "In the short run, the stock market is a voting machine. In the long run, it's a weighing machine." -- Benjamin Graham One other property of markets is that they're very good at transferring wealth from those who get caught up in the herd mentality to those who do their own research and hold their own opinions. This may be bad for wealth inequality, but it does make them self-correcting when it comes to human emotions.

zeroname 8y ago

What has been lost is confidence. High stock valuations boost the wealth effect. This has a real impact economic activity. It's not just NVIDIA, a lot of tech stocks have tanked and the market in general is close to turning into a bear.

regularfry 8y ago

It's a bad headline. It hasn't lost half its value. It's lost half its price.

fermienrico 8y ago
No, it is not. Value? Price? You're confusing the matters. In corporate finance, valuation has a specific meaning. In this case, lost half of its value is correct; even better would be "market value".
- TuringNYC 8y ago
  If we want to be really specific, hasn't only NVIDIA equity lost half the value. I'm pretty sure other portions of the capital structure are largely unblemished.
  - kgwgk 8y ago
    A couple of billions of debt (which could be paid easily with the cash in hand) are completely irrelevant relative to the change in market cap.
- dahart 8y ago
  Personally I don’t think the parent comment is confused. The stock lost half it’s value, but the company did not. Book value is the term for assets minus liabilities, so “value” without qualification tends to imply all types of value at once. The term “company value” used at the end of the article might even tend to imply more book value than market value to the average techcrunch reader. I suspect the author intended to conflate them in order to paint a picture that is more negative than the real story. He definitely conflated market value with book value when he wrote “Nvidia is proving that an otherwise strong technology business can disappear in the blink of an eye.” That line is more or less pure hyperbole.

drag0nballz 8y ago

Part of the worry is all the used GPUs that are going to come on the market since it doesn't make sense to mine anymore (or less sense). Their core business will be depressed until that is worked through

starpilot 8y ago

"Value" is just the price someone is willing to pay for something, it doesn't have to be tangible. Supply & demand, nothing more. Look at art.

pbhjpbhj 8y ago
No, value is much more nuanced. Example, people can value something very highly but not have funds to buy it, someone who can afford the price easily can value something as being of little worth, but due to their wealth they can afford it. You appear to be confusing price, ability to pay, and value. Do look at art. You can buy a hugely influential piece of art and not value it at all, you buy it as an investment but don't care about its innate qualities, its influence on the art world (directly, only indirectly by the price that confers) or it's cultural worth.

twblalock 8y ago

> If so, shouldn't we ask why we are attaching so much significance to something which has very little bearing on what we, as humans, do: production? Production is what most humans spend their working days doing or supporting or contributing to. In the case of company value, investors care not only about what the company is worth today but also about what it will be worth in the future. It makes sense that lower sales result in a lower stock price despite the fact that the products and current capital are unchanged.

loeg 8y ago

Market cap is a predictive valuation of future income, more or less. The fact that it has gone down reflects negative investor sentiment about future income, not that they had a warehouse fire.