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> There is no short term price in stocks. Stocks are valued at their perceived long term value. Hogwash. Pretty much every company on the S&P 500 dropped 30% a

> There is no short term price in stocks. Stocks are valued at their perceived long term value. Hogwash. Pretty much every company on the S&P 500 dropped 30% around March. Did their perceived long-term value change 30%? I doubt it. I think most people were fully aware that most companies in the S&P's 10 year value wasn't going to change much; certainly not 30%. Yet, it dropped 30%. And then the next month it has risen back up to about 10% of its all-time high. I don't think people seriously thought that Apple, Coca-Cola, Pepsi, etc. suddenly dropped in value 30% and then suddenly rose 20% (yes, I know, technically it was more). If you can have swings of +/- 30% over a period of two months, I don't think the value is reflecting the long-term prospects. There is both short-term AND long-term pricing in stocks. "In the short-run, the market is a voting machine. In the long-run, the market is a weighing machine." Ben Graham

goatinaboat 6y ago
Hogwash. Pretty much every company on the S&P 500 dropped 30% around March. Did their perceived long-term value change 30%? Double hogwash. That pricing reflected that people suddenly needed cash right now and was irrespective of what anyone thought about long term value. I will bet most of the sellers bitterly regretted it but saw no option but to sell at whatever price they could get because they had urgent immediate needs.
- _dps 6y ago
  Yes, one good way to think about this was that there was very little change in the value (fully discounted long term etc.) of stocks but a large change in the price (current exchange rate with other participants facing temporal constraints) of cash.
- prewett 6y ago
  Right, that's my point: prices don't perfectly reflect long-term value. You give an excellent example of why the currently price might not reflect long-term value, which I need to remember for next time!
WalterBright 6y ago
The short term price theory requires that anyone selling at those short term high prices is selling to someone convinced that prices will go higher in the future, i.e. that you've tricked them. Price volatility is an indication that either economic conditions are changing rapidly which affects the long term prospects, or that people are very unsure about what the long term prospects are. It is not an indication that companies are being rewarded for eating their seed corn. BTW, years ago, I knew a CEO who believed in manipulating the accounts to boost the short term at the expense of the long term. He made the mistake of telling the press he was doing this. The stock immediately tanked. If the short term pricing theory was correct, the stock would have risen. Then we have companies like Amazon, who explicitly say they are sacrificing short term profits for long term growth. The result? The stock price has soared to incredible heights.
brianchu 6y ago
Your example is hogswash. Absolutely, the perceived long term value dropped 30% as people feared a million deaths (with lockdown) and dead bodies piling up outside hospitals across the country (with lockdown, and not just New York City). The stock market is rising now that people realize the pandemic, while still bad, isn't going to be as bad as those predictions. Our perception/understanding of the pandemic has rapidly changed.

goatinaboat 6y ago

Hogwash. Pretty much every company on the S&P 500 dropped 30% around March. Did their perceived long-term value change 30%? Double hogwash. That pricing reflected that people suddenly needed cash right now and was irrespective of what anyone thought about long term value. I will bet most of the sellers bitterly regretted it but saw no option but to sell at whatever price they could get because they had urgent immediate needs.

_dps 6y ago
Yes, one good way to think about this was that there was very little change in the value (fully discounted long term etc.) of stocks but a large change in the price (current exchange rate with other participants facing temporal constraints) of cash.
prewett 6y ago
Right, that's my point: prices don't perfectly reflect long-term value. You give an excellent example of why the currently price might not reflect long-term value, which I need to remember for next time!

WalterBright 6y ago

The short term price theory requires that anyone selling at those short term high prices is selling to someone convinced that prices will go higher in the future, i.e. that you've tricked them. Price volatility is an indication that either economic conditions are changing rapidly which affects the long term prospects, or that people are very unsure about what the long term prospects are. It is not an indication that companies are being rewarded for eating their seed corn. BTW, years ago, I knew a CEO who believed in manipulating the accounts to boost the short term at the expense of the long term. He made the mistake of telling the press he was doing this. The stock immediately tanked. If the short term pricing theory was correct, the stock would have risen. Then we have companies like Amazon, who explicitly say they are sacrificing short term profits for long term growth. The result? The stock price has soared to incredible heights.

brianchu 6y ago

Your example is hogswash. Absolutely, the perceived long term value dropped 30% as people feared a million deaths (with lockdown) and dead bodies piling up outside hospitals across the country (with lockdown, and not just New York City). The stock market is rising now that people realize the pandemic, while still bad, isn't going to be as bad as those predictions. Our perception/understanding of the pandemic has rapidly changed.