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There's an interesting quirk of markets that can explain the broken-up companies being worth more. Prices in a market are set on the margins: the price of Bitc

There's an interesting quirk of markets that can explain the broken-up companies being worth more. Prices in a market are set on the margins: the price of Bitcoin or Tesla stock is set by those who are actively buying and selling. If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. When a company is broken up into competitive entities, there's uncertainty about which company is going to become dominant in the future. So if you think Esso is going to win the lion's share, you're going to put your money in Esso stock. Ditto Kyso, Calso (Chevron), Sohio, Amoco, Marathon, Mobil, etc. They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. A similar phenomena likely occurred in the crypto bubble of 2017, where everybody had their pet crypto they were cheerleading and they all expected it to take over the whole economy - this was made even more complicated because many of them were priced in Bitcoin, which had to be purchased to buy any of them, which meant that price increases in Bitcoin were reflected in the price of altcoins as well. It's likely also a factor in Tesla speculation - Tesla shareholders believe it will take over the entire world car market, while Tesla skeptics drop out of the market and don't matter to the price action. (The risk asymmetry in shorting also contributes to this. In a perfectly efficient market, if you believe something is overvalued you short it instead of dropping out of the market, which drives the price down to fair value. In reality, your downside with shorts is potentially unlimited, you can get rekt if the price stays irrational longer than you stay solvent, and few firms have the resources to maintain short positions in a long-term bubble.)

kbenson 6y ago
> If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. Doesn't that reduce demand though, which lowers price? > They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. Doesn't that only make sense if only those cheerleaders are doing buying and selling? I imagine there's three groups that matter for this argument, yay-sayers, regular people, and nay-sayers. If yay-sayers are basically all in, they've brought the stock up I imagine, but they're probably not doing a lot of movement I would guess? nay-sayers aren't buying anything, but that means there's less prospective people to buy what's being sold (stock-wise). Regular people then buy and sell. There's less people to buy what they are selling though, so does that reduce the price at which they can actually offload shares? Then again, maybe yay-sayers are willing to gobble up stock below a certain price (which is still a high valuation), propping up the market? To me it seems like both have effects on the market, opposite of each other. Then again, my knowledge of the stock market is more theoretical than anything, so I'm happy to have my assumptions explained wrong.
- nullc 6y ago
  > Doesn't that reduce demand though, which lowers price? Yes, but "Seems fine, but I'm not interested." and "LOL. I've researched this extensively and am confident that this is a scam" both send the same 0 demand signal.
dehrmann 6y ago
> The risk asymmetry in shorting also contributes to this Sounds like "markets can remain irrational for longer than you can remain solvent." I hadn't thought of it as risk asymmetry, before.

kbenson 6y ago

> If you think those assets are complete scams, you aren't going to go near them, which means your opinion doesn't matter for the purpose of setting the price. Doesn't that reduce demand though, which lowers price? > They all get their own teams of cheerleaders, who value the spinoffs at close to the value of the original because they think their preferred spinoff will take most of the market of the parent company. People who disagree with that valuation don't matter, because they aren't going to be trading in that stock anyway. Doesn't that only make sense if only those cheerleaders are doing buying and selling? I imagine there's three groups that matter for this argument, yay-sayers, regular people, and nay-sayers. If yay-sayers are basically all in, they've brought the stock up I imagine, but they're probably not doing a lot of movement I would guess? nay-sayers aren't buying anything, but that means there's less prospective people to buy what's being sold (stock-wise). Regular people then buy and sell. There's less people to buy what they are selling though, so does that reduce the price at which they can actually offload shares? Then again, maybe yay-sayers are willing to gobble up stock below a certain price (which is still a high valuation), propping up the market? To me it seems like both have effects on the market, opposite of each other. Then again, my knowledge of the stock market is more theoretical than anything, so I'm happy to have my assumptions explained wrong.

nullc 6y ago
> Doesn't that reduce demand though, which lowers price? Yes, but "Seems fine, but I'm not interested." and "LOL. I've researched this extensively and am confident that this is a scam" both send the same 0 demand signal.

dehrmann 6y ago

> The risk asymmetry in shorting also contributes to this Sounds like "markets can remain irrational for longer than you can remain solvent." I hadn't thought of it as risk asymmetry, before.