5 ms·

The market incorporates information into the price, not the other way around. Or in other words the price is the total aggregate of the information.

by mruts 7y ago

baddox 7y ago
Isn’t it somewhat cyclical? It seems to me that the market price is also information about what the market thinks about the company, and what the market thinks about the company can certainly affect the performance of the company.
b_tterc_p 7y ago
The market does incorporate new information into the price, but that doesn’t mean new business information is the only driver of the price, the largest driver of the price, or that the price is well set to begin with. Consider the current state of the economy. People have lots of money with fewer places to put it. Lots of people just dump it into index funds. That means more shares of large companies are bought, which means the price of those shares is going to go up. This is happening as a fixed function based on total market cap. Did we really get any new information to believe that npv of future cash flows had gone up? Nah.
- mlthoughts2018 7y ago
  The market inpounds any new, publicly available information into the price, not merely business information. If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know!
  - b_tterc_p 7y ago
    > The market inpounds any new, publicly available information into the price, not merely business information. Yes, and the “price” is not the expected net value of future cash flows, it’s an estimate of what people are going to pay for it. The price and the value are two distinct concepts. > If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know! I know that you’re taking a positive “well show me” kind of stance to imply that I don’t know the market better than the people actively involved in it. But I’m not claiming to know where prices should be. I’m claiming prices are driven by a variety of things, one of which is value, but much of which is just various unsubstantiated assumptions. Many of those assumptions could be entirely incorrect. That does not mean the market will realize this soon, or ever, so assuming that any particular world view of what’s incorrect will materialize in a price change isn’t the wisest decision. For capital gains oriented growth tech stocks especially, significant money has been invested because of a simple lack of alternatives, which has inflated prices. Should those prices fall? Irrelevant question, because value is not the sole driver of price. Irrationality is a part of the system.

The market incorporates information into the price, not the other way around. Or in other words the price is the total aggregate of the information.

by mruts 7y ago

The market incorporates information into the price, not the other way around. Or in other words the price is the total aggregate of the information.

baddox 7y ago

Isn’t it somewhat cyclical? It seems to me that the market price is also information about what the market thinks about the company, and what the market thinks about the company can certainly affect the performance of the company.

b_tterc_p 7y ago

The market does incorporate new information into the price, but that doesn’t mean new business information is the only driver of the price, the largest driver of the price, or that the price is well set to begin with. Consider the current state of the economy. People have lots of money with fewer places to put it. Lots of people just dump it into index funds. That means more shares of large companies are bought, which means the price of those shares is going to go up. This is happening as a fixed function based on total market cap. Did we really get any new information to believe that npv of future cash flows had gone up? Nah.

mlthoughts2018 7y ago
The market inpounds any new, publicly available information into the price, not merely business information. If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know!
- b_tterc_p 7y ago
  > The market inpounds any new, publicly available information into the price, not merely business information. Yes, and the “price” is not the expected net value of future cash flows, it’s an estimate of what people are going to pay for it. The price and the value are two distinct concepts. > If you have a reason to think for example that “dumping money into index funds” is somehow inefficient, please share! If the resulting price of companies in the index is a mispricing opportunity, let us know! I know that you’re taking a positive “well show me” kind of stance to imply that I don’t know the market better than the people actively involved in it. But I’m not claiming to know where prices should be. I’m claiming prices are driven by a variety of things, one of which is value, but much of which is just various unsubstantiated assumptions. Many of those assumptions could be entirely incorrect. That does not mean the market will realize this soon, or ever, so assuming that any particular world view of what’s incorrect will materialize in a price change isn’t the wisest decision. For capital gains oriented growth tech stocks especially, significant money has been invested because of a simple lack of alternatives, which has inflated prices. Should those prices fall? Irrelevant question, because value is not the sole driver of price. Irrationality is a part of the system.