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The modern stock markets have been insane since at least the 90s, and I bet there are some underlying banking and finance rules which led to the changes in over

by blunte 6y ago

The modern stock markets have been insane since at least the 90s, and I bet there are some underlying banking and finance rules which led to the changes in overall market sanity. If you go back in time, value investors really dig into companies to try to understand their current and probable future values. Also, I believe it was rare or never that companies could pull off an IPO without some history of profitability. At least since the dot-com era, hype-only (no valid financials) IPOs became common. I suspect the whole VC funding ponzi system had something to do with this. Uber was my favorite example... years of never-profit, but rather multiple higher rounds of funding and then IPO. But at least in the case of Tesla, they not only have managed to build actual cars that sell well, but more importantly they are a battery company. This last bit is probably a big part of their future valuation.

davedx 6y ago
Serious question: how do you define "valid financials" and why?
JMTQp8lwXL 6y ago
The malinvestment seems to be a byproduct of low interest rates, too many investment dollars facing too few returns, and increasing wealth inequality (further driving too much investment capital).
- ekianjo 6y ago
  Yup. Inflation created by QE ends up in the stock market where pretty much anything goes these days.
  - rapsey 6y ago
    Which means worrying about fundamentals like cash flow to market cap is meaningless. Those days are over. It is all about supply, demand and liquidity. Stock prices are a popularity contest and banks are full of cash so they are in no danger of crashing like in '08.
jbob2000 6y ago
It’s some weird perversion of our systems that an entire class of people are able to pump a company’s books in private and then dump them on the market for pension funds and retail investors (aka working people) to pick up the debts. This VC thing is just class warfare in disguise with more steps.
- ada1981 6y ago
  I’ve heard YC Alumni talking openly about building something and then “selling it to dentists in Nebraska”. They are talking about pumping up a stock and unloading it on some working class rube (well, thousands of rubes) who topped out at the education + service tier. This is viable exit strategy for many.
baxtr 6y ago
I don't think it is a new phenomenon. Insanity is just part of human nature. In his book "The Intelligent Investor" Benjamin Graham constantly refers to irrational "Mr. Market". The book was written in 1949. Go back even further in time and find Dutch going crazy over tulips. And so on. The best advice I have ever been given: Just ignore the market noise. Invest in a broad ETF and stay in for as long as you can, don't look at your balance until then (which I still do).
mewpmewp2 6y ago
Here's a thought experiment. I'm not talking about Tesla and this situation is completely hypothetical. What would you pay for a company that currently has profits of $10,000, but is guaranteed to grow each year 50% until they have $1T in profits. If possible give a numerical value please, what you think a) The company is worth currently b) How much would you pay for 1% of this company's stock?
- rapsey 6y ago
  The real question is how popular the CEO is on twitter. Stocks are nothing but a popularity contest now.
- WA 6y ago
  From $10,000 to $1T would take almost 46 years. Guaranteed growth of 50% per year? I mean, what’s the point of this hypothetical question if it is completely unrealistic? You could also ask: how much would you be willing to spend right now to receive 1 billion in 46 years? Are you allowed to cash out earlier? Can your children inherit it? Can I borrow money to buy this guaranteed payoff?
  - mewpmewp2 6y ago
    Okay let's just simplify. How would you value this company? What would be fair share price you would consider buying in assuming for example it has 100,000,000 shares? Either question works.
    - davidivadavid 6y ago
      I'm not sure if you're quizzing people or asking for a way to value a company like Tesla. In which case I would recommend Aswath Damodaran's blog, where he's done that a few times, so you can see his methodology. http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-revisiting-my-tesla.html http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-r... (in video form at the bottom if you prefer)
- bob33212 6y ago

by blunte 6y ago

davedx 6y ago

Serious question: how do you define "valid financials" and why?

JMTQp8lwXL 6y ago

The malinvestment seems to be a byproduct of low interest rates, too many investment dollars facing too few returns, and increasing wealth inequality (further driving too much investment capital).

ekianjo 6y ago
Yup. Inflation created by QE ends up in the stock market where pretty much anything goes these days.
- rapsey 6y ago
  Which means worrying about fundamentals like cash flow to market cap is meaningless. Those days are over. It is all about supply, demand and liquidity. Stock prices are a popularity contest and banks are full of cash so they are in no danger of crashing like in '08.

jbob2000 6y ago

It’s some weird perversion of our systems that an entire class of people are able to pump a company’s books in private and then dump them on the market for pension funds and retail investors (aka working people) to pick up the debts. This VC thing is just class warfare in disguise with more steps.

ada1981 6y ago
I’ve heard YC Alumni talking openly about building something and then “selling it to dentists in Nebraska”. They are talking about pumping up a stock and unloading it on some working class rube (well, thousands of rubes) who topped out at the education + service tier. This is viable exit strategy for many.

baxtr 6y ago

I don't think it is a new phenomenon. Insanity is just part of human nature. In his book "The Intelligent Investor" Benjamin Graham constantly refers to irrational "Mr. Market". The book was written in 1949. Go back even further in time and find Dutch going crazy over tulips. And so on. The best advice I have ever been given: Just ignore the market noise. Invest in a broad ETF and stay in for as long as you can, don't look at your balance until then (which I still do).

mewpmewp2 6y ago

Here's a thought experiment. I'm not talking about Tesla and this situation is completely hypothetical. What would you pay for a company that currently has profits of $10,000, but is guaranteed to grow each year 50% until they have $1T in profits. If possible give a numerical value please, what you think a) The company is worth currently b) How much would you pay for 1% of this company's stock?

rapsey 6y ago
The real question is how popular the CEO is on twitter. Stocks are nothing but a popularity contest now.
WA 6y ago
From $10,000 to $1T would take almost 46 years. Guaranteed growth of 50% per year? I mean, what’s the point of this hypothetical question if it is completely unrealistic? You could also ask: how much would you be willing to spend right now to receive 1 billion in 46 years? Are you allowed to cash out earlier? Can your children inherit it? Can I borrow money to buy this guaranteed payoff?
- mewpmewp2 6y ago
  Okay let's just simplify. How would you value this company? What would be fair share price you would consider buying in assuming for example it has 100,000,000 shares? Either question works.
  - davidivadavid 6y ago
    I'm not sure if you're quizzing people or asking for a way to value a company like Tesla. In which case I would recommend Aswath Damodaran's blog, where he's done that a few times, so you can see his methodology. http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-revisiting-my-tesla.html http://aswathdamodaran.blogspot.com/2020/01/an-ode-to-luck-r... (in video form at the bottom if you prefer)
bob33212 6y ago