5 ms·

Yeah, it's a bit like "second order" wisdom of the crowds. First order: "How many jelly beans are in this jar?" Second order: "What percentage of people will

Yeah, it's a bit like "second order" wisdom of the crowds. First order: "How many jelly beans are in this jar?" Second order: "What percentage of people will get the wrong answer to this question about Pennsylvania's capital?" There's also the interplay with the Keynesian beauty contest: https://en.wikipedia.org/wiki/Keynesian_beauty_contest https://en.wikipedia.org/wiki/Keynesian_beauty_contest In some sense the stock market is an infinite regress of these "what will other people think about value..." questions.

whatshisface 7y ago
Shares do actually have a fundamental value, based on their lifetime dividends, buybacks and liquidation. So unlike, say, Bitcoin or the Dollar, there is something to be gained from knowing the zeroth-order reality.
- brankoB 7y ago
  Disagree. Think about what makes a share liquid: lots of potential buyers (i.e. people perceiving it as a safe investment).
  - whatshisface 7y ago
    If you were offering a long period of healthy dividends for a good price, I wouldn't care if I could sell it.
    - brankoB 7y ago
      Sure but where does the amount of dividends you're being given come from? All i'm saying is there's no objective "baseline", it's all perceived value no matter how you look at it.
  - adventured 7y ago
    > Think about what makes a share liquid: lots of potential buyers You don't need lots of potential buyers for liquidity, only one for what you're trying to sell. It's why very low volume secondary markets can function and provide liquidity. A lot of people will also obviously invest into things even when they do not consider them safe investments. If the potential return is thought to be high enough, large numbers of people will routinely invest into unsafe investments with full awareness that it's at least somewhat dangerous (whether stocks, crypto, real-estate, schemes, etc).
    - brankoB 7y ago
      I get what you're trying to say but having multiple potential buyers is literally the definition of liquidity. If you only have one for what you're trying to sell then it's very easy for someone else to sell their share and boom you can't get rid of yours. These secondary markets work because there's a low amount of buyers AND sellers but if there would happen to be a sudden surge in sellers then the low liquidity of the market would eventually show itself.
- sireat 7y ago
  Historically most shares did have a fundamental value. When Buffet was starting out in 1950-1960s, shareholders had stronger rights and many shares did pay dividends. The worst case scenario would be gaining a controlling share and forcing some sort of payback. Today there are many classes of shares which are disturbingly close to buying random cryptocoin. Think about buying non-voting shares of Google,Facebook,Zynga, etc. Or how about buying whatever that travesty that ADR of Alibaba is ? What are you getting when you buy Alibaba in US? What are you getting really when you buy those kind of shares? You have very little of hope of getting dividends. You have no hope of getting controlling shareholders to give up their controlling "some animals are more equal" shares. So there is very little intrinsic value in those. Thus the only value is the "castles in the air" valuation.
  - whatshisface 7y ago
    You've raised a very good point, and that's something I spend a lot of time thinking about. Zynga is a great example because there's a serious chance that they could go out of business before paying a single penny to shareholders. However, for those with fear of that situation, there are saner equities on the market.

whatshisface 7y ago

Shares do actually have a fundamental value, based on their lifetime dividends, buybacks and liquidation. So unlike, say, Bitcoin or the Dollar, there is something to be gained from knowing the zeroth-order reality.

brankoB 7y ago
Disagree. Think about what makes a share liquid: lots of potential buyers (i.e. people perceiving it as a safe investment).
- whatshisface 7y ago
  If you were offering a long period of healthy dividends for a good price, I wouldn't care if I could sell it.
  - brankoB 7y ago
    Sure but where does the amount of dividends you're being given come from? All i'm saying is there's no objective "baseline", it's all perceived value no matter how you look at it.
- adventured 7y ago
  > Think about what makes a share liquid: lots of potential buyers You don't need lots of potential buyers for liquidity, only one for what you're trying to sell. It's why very low volume secondary markets can function and provide liquidity. A lot of people will also obviously invest into things even when they do not consider them safe investments. If the potential return is thought to be high enough, large numbers of people will routinely invest into unsafe investments with full awareness that it's at least somewhat dangerous (whether stocks, crypto, real-estate, schemes, etc).
  - brankoB 7y ago
    I get what you're trying to say but having multiple potential buyers is literally the definition of liquidity. If you only have one for what you're trying to sell then it's very easy for someone else to sell their share and boom you can't get rid of yours. These secondary markets work because there's a low amount of buyers AND sellers but if there would happen to be a sudden surge in sellers then the low liquidity of the market would eventually show itself.
sireat 7y ago
Historically most shares did have a fundamental value. When Buffet was starting out in 1950-1960s, shareholders had stronger rights and many shares did pay dividends. The worst case scenario would be gaining a controlling share and forcing some sort of payback. Today there are many classes of shares which are disturbingly close to buying random cryptocoin. Think about buying non-voting shares of Google,Facebook,Zynga, etc. Or how about buying whatever that travesty that ADR of Alibaba is ? What are you getting when you buy Alibaba in US? What are you getting really when you buy those kind of shares? You have very little of hope of getting dividends. You have no hope of getting controlling shareholders to give up their controlling "some animals are more equal" shares. So there is very little intrinsic value in those. Thus the only value is the "castles in the air" valuation.
- whatshisface 7y ago
  You've raised a very good point, and that's something I spend a lot of time thinking about. Zynga is a great example because there's a serious chance that they could go out of business before paying a single penny to shareholders. However, for those with fear of that situation, there are saner equities on the market.