5 ms·

Not really. Currently the economy is in a bad state but this is not permanent. We expect things to eventually bounce back when we have the virus under control,

by robjan 7y ago

Not really. Currently the economy is in a bad state but this is not permanent. We expect things to eventually bounce back when we have the virus under control, and that has been priced into the current valuations. If it wasn't priced in then now would be a great time to buy which would push the prices up due to higher demand. When you own a stock, you own it until either you sell it or the company goes bust. Therefore the price is based on investor belief about the future, not just the current situation.

titzer 7y ago
> the price is based on investor belief about the future Six milliseconds from now, when the automated trading systems think they can sell and make a profit. Seriously, over 50% of trading volume is done by automated trading systems these days. edit: looks like I underestimated. This article from June 2019 suggests it may be as much as 80%: https://www.cnbc.com/2019/06/28/80percent-of-the-stock-market-is-now-on-autopilot.html https://www.cnbc.com/2019/06/28/80percent-of-the-stock-marke...
- robjan 7y ago
  That may be the case but I feel you are mixing cause and effect. Trading algorithms don't cause a company to make more profit and therefore distribute dividends.
  - titzer 7y ago
    And companies didn't suddenly make trillions of dollars in profits in a week to recover from the bottom of the crash a couple weeks back. The market is only up right now because the sharks are feeding on the stimulus money created out of thin air. Automated trading systems are trying to make money right now, not six months or even a week from now.
    - quickthrowman 7y ago
      The automated trading systems are programmed by... people, they do not have agency of their own. I agree the market shouldn’t be where it is, but instead of yelling about computer programs on an internet discussion forum, I bought puts on IWM.
    - Dylan16807 7y ago
      Prices are pushed up by purchases, and you don't make money by getting stuck with stock that isn't worth anything. Automated trading is all about very very temporary wiggles, and those are not something to worry about long-term. It's not like a 3% drop in the economy should cause stocks to tumble in the first place. Drop but not tumble.
    - kortilla 7y ago
      I don’t think you understand how valuation works in the stock market. The prices of the securities are based on what investors think the company will be doing in 6-12 months, not what it’s doing now. That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. Everyone knows companies are shut down now and are bleeding cash, that was why the market quickly crashed immediately after the shutdown. Now that we’re into the shutdown and it looks like maybe a re-open by summer, how do the businesses look then? Especially when they’ve had bailout money to help pay expenses during the shutdown.
      - quickthrowman 7y ago
        For a consumption based economy where 15-25 million people will be unemployed temporarily, I don’t think business is going to look like July 2019. More of those jobs will be lost permanently than most people are forecasting, and consumer confidence will take longer to rebound as well. Once the second wave of infections hit when places start reopening, people will voluntarily head back inside. I have a large short position on IWM right now and have since last week. If the next leg down doesn’t start from Q2 earnings, Q3 earnings will.
      - titzer 7y ago
        > The prices of the securities are based on what investors think the company That's a quaint view, but the logistics is completely mathematical. The prices of securities is absolutely and completely based on the bid and offers. It is a completely mathematical outcome of transactions. Of course, prices feed into the psychology of investors, as well as their estimates of future performance. But a huge amount of cash in the market is there to make short-term profits, not long term profits. Automated systems trade huge amounts of money based off technical analysis and price prediction on multiple timescales. There are computer systems with stupid amounts of computational power who only think about how to make two cents by being ahead of the market by 1 millisecond, 1 second, one day, one week. And they make billions. > That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. I think we're into a rathole here, but this statement basically contradicts your earlier point. If prices are based off the future 6-12 months from now, then crashes wouldn't happen, or be so severe. This is obviously false. Bubbles pop violently.
  - kerkeslager 7y ago
    True, but that has very little to do with stock price. In fact, making a profit doesn't cause companies to distribute dividends. When stock prices aren't based on dividend potential, stock price slowly becomes detached from reality. Price becomes pure speculation. Worse, you can do insane things like borrowing money to buy back your own stock: this drives up the price while harming the company's future prospects because they now have to pay that loan back with interest.
- WanderPanda 7y ago
  You can do 100% of the Volume with 0.1% of the stock. These hft algos do not move the market mid-/longterm
  - titzer 7y ago
    [citation needed]
- quickthrowman 7y ago
  Yes, and most of that is market-making to capture a rebate offered by exchanges for providing liquidity to the market. I don’t know about you, but I like penny wide spreads on liquid stocks. The minimum used to be 12.5 cents (1/8th tick). Would you please explain why HFT and algorithmic trading are bad? Are you an ex floor trader or something?
fallingfrog 7y ago
“Investor belief”->”speculation”

by robjan 7y ago

titzer 7y ago

> the price is based on investor belief about the future Six milliseconds from now, when the automated trading systems think they can sell and make a profit. Seriously, over 50% of trading volume is done by automated trading systems these days. edit: looks like I underestimated. This article from June 2019 suggests it may be as much as 80%: https://www.cnbc.com/2019/06/28/80percent-of-the-stock-market-is-now-on-autopilot.html https://www.cnbc.com/2019/06/28/80percent-of-the-stock-marke...

robjan 7y ago
That may be the case but I feel you are mixing cause and effect. Trading algorithms don't cause a company to make more profit and therefore distribute dividends.
- titzer 7y ago
  And companies didn't suddenly make trillions of dollars in profits in a week to recover from the bottom of the crash a couple weeks back. The market is only up right now because the sharks are feeding on the stimulus money created out of thin air. Automated trading systems are trying to make money right now, not six months or even a week from now.
  - quickthrowman 7y ago
    The automated trading systems are programmed by... people, they do not have agency of their own. I agree the market shouldn’t be where it is, but instead of yelling about computer programs on an internet discussion forum, I bought puts on IWM.
  - Dylan16807 7y ago
    Prices are pushed up by purchases, and you don't make money by getting stuck with stock that isn't worth anything. Automated trading is all about very very temporary wiggles, and those are not something to worry about long-term. It's not like a 3% drop in the economy should cause stocks to tumble in the first place. Drop but not tumble.
  - kortilla 7y ago
    I don’t think you understand how valuation works in the stock market. The prices of the securities are based on what investors think the company will be doing in 6-12 months, not what it’s doing now. That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. Everyone knows companies are shut down now and are bleeding cash, that was why the market quickly crashed immediately after the shutdown. Now that we’re into the shutdown and it looks like maybe a re-open by summer, how do the businesses look then? Especially when they’ve had bailout money to help pay expenses during the shutdown.
    - quickthrowman 7y ago
      For a consumption based economy where 15-25 million people will be unemployed temporarily, I don’t think business is going to look like July 2019. More of those jobs will be lost permanently than most people are forecasting, and consumer confidence will take longer to rebound as well. Once the second wave of infections hit when places start reopening, people will voluntarily head back inside. I have a large short position on IWM right now and have since last week. If the next leg down doesn’t start from Q2 earnings, Q3 earnings will.
    - titzer 7y ago
      > The prices of the securities are based on what investors think the company That's a quaint view, but the logistics is completely mathematical. The prices of securities is absolutely and completely based on the bid and offers. It is a completely mathematical outcome of transactions. Of course, prices feed into the psychology of investors, as well as their estimates of future performance. But a huge amount of cash in the market is there to make short-term profits, not long term profits. Automated systems trade huge amounts of money based off technical analysis and price prediction on multiple timescales. There are computer systems with stupid amounts of computational power who only think about how to make two cents by being ahead of the market by 1 millisecond, 1 second, one day, one week. And they make billions. > That’s why in really uncertain times the stock can drastically move without any of the current financials changing drastically. I think we're into a rathole here, but this statement basically contradicts your earlier point. If prices are based off the future 6-12 months from now, then crashes wouldn't happen, or be so severe. This is obviously false. Bubbles pop violently.
- kerkeslager 7y ago
  True, but that has very little to do with stock price. In fact, making a profit doesn't cause companies to distribute dividends. When stock prices aren't based on dividend potential, stock price slowly becomes detached from reality. Price becomes pure speculation. Worse, you can do insane things like borrowing money to buy back your own stock: this drives up the price while harming the company's future prospects because they now have to pay that loan back with interest.
WanderPanda 7y ago
You can do 100% of the Volume with 0.1% of the stock. These hft algos do not move the market mid-/longterm
- titzer 7y ago
  [citation needed]
quickthrowman 7y ago
Yes, and most of that is market-making to capture a rebate offered by exchanges for providing liquidity to the market. I don’t know about you, but I like penny wide spreads on liquid stocks. The minimum used to be 12.5 cents (1/8th tick). Would you please explain why HFT and algorithmic trading are bad? Are you an ex floor trader or something?

fallingfrog 7y ago

“Investor belief”->”speculation”