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This is a great example of how the stock market is not about fundamentals, just like Bitcoin, it’s all about popularity and perception. In the end, people don’

This is a great example of how the stock market is not about fundamentals, just like Bitcoin, it’s all about popularity and perception. In the end, people don’t care if the “stock is really worth” the price, they only care if themselves or someone else are willing to pay the price, nothing else really matters.

wesammikhail 6y ago
You´re right in the short term. But in the long term the hope is that things average out and true value emerges as a function of countless transactions over years and years. Markets are a value ascribing heuristic machine. There is nothing about them that can deterministically point to objective value. However, the idea is that over a longer period of time, an approximation of true value emerges though wisdom of the crowd.
- AznHisoka 6y ago
  But what if retail investors start to make up a larger % of investors? Then the dominant philosophy is hype, popularity and trying to sell to a greater fool. This is already happening: retail investors are growing in number. Originally, when institutions were the major players, stock prices followed fundamentals because most ppl cared about the revenue, earnings and cash flow. But what happens when the demographics change?
  - Infinitesimus 6y ago
    How confident are you that they followed fundamentals in any original setting? "Fundamentals" is just a collection of metrics and patterns a certain class of investor believes in. Usually those with most money and thus, power. I think you have a rosier view of what drives most of our markets than what happens in reality. Look at the dot com bubbles. Look at how HFT firms make money by exploiting the tiniest of pricing discrepancies and leveraging them heavily. Or perhaps "analyst reports" that can make or break a stock because one person believes something and we give them a megaphone. We switched focuse from present earnings to forward looking revenue. We have stock buybacks. We applied large multiples to financially unsustainable businesses because "maybe one day they can monetize these millions of users with Ads". etc. etc. The GFC was a game of trying to sell to the greater fool and involved intentional manipulation at the highest levels. It seems the system has been has always had these holes and it was "ok" until regular folks began to identify and act on these opportunities. We likely wouldn't be having this conversation if another large hedge fund was making the play retail investors are today. We'd read articles talking about the public battle of the billions. Reminds me of anytime a govt entity creates & exploits a backdoor and is surprised when other actors use the same door for their own activities.
    - AznHisoka 6y ago
      No rosy view - hedge funds and algos follow momentum and copy each other as well. I actually agree with some of your points but was questioning OP. Sometimes I ask questions and present a counter-argument to understand another viewpoint better, not because it’s what I believe in.
- Thrymr 6y ago
  "In the short run, the market is a voting machine but in the long run, it is a weighing machine" attributed to Benjamin Graham
- SomewhatLikely 6y ago
  I would say it's more than a hope. Any trader whose strategy is closer to optimal will have larger profits over time and come to own a larger and larger fraction of the market. Though saying that out loud makes me realize optimal doesn't have to mean buying and selling according to true value. Optimal would in fact be predicting the behavior of other participants and trading off those predictions. I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock.
  - lordnacho 6y ago
    > I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock. Those things are themselves the product of the market price, it's not a one way street. This is what Soros' reflexivity is about.
  - dash2 6y ago
    "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees." Keynes, 1936.
- walleeee 6y ago
  > Markets are a value ascribing heuristic machine. There is nothing about them that can deterministically point to objective value. However, the idea is that over a longer period of time, an approximation of true value emerges though wisdom of the crowd. It's a beautiful idea in principle. Ultimately the reality that emerges will reflect the underlying values of the society. Really makes you wonder about our values, given that presently emerging realities include an increasingly inhospitable homeworld.
nerfhammer 6y ago
but a stock is partial ownership of a real business, which has revenue and owns other assets
- shadowgovt 6y ago
  What that means tangibly varies from business to business. You might get a cut of the profits in the form of dividends... unless you don't. Plenty of stocks never pay dividends. A lot of companies pay more to charity than to dividends to investors. Or, you get a vote on company policy at the stockholder's meeting... But if the founders own more than half the stock, that doesn't actually matter. And that's assuming the founders haven't just sold stock with no voting privileges. If the company files for Chapter 7 bankruptcy, stock owners are entitled to company assets... And almost never see any, because they're last in line behind every other creditor. So it's unclear what, precisely, the practical weight of "partial ownership in a real business" has in general. In specific, sure; stock could be access to dividends or a meaningful voice in company policy. For a lot of stock, the only real value is "How much will someone else pay me for this piece of the action?"
  - acover 6y ago
    Aren't there minority shareholder rights, which give you the right to sue if they do something against your interest?
- cwkoss 6y ago
  That is true for businesses with "reasonable" P/E multiples of ~5 or less. When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings. It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.
  - erichocean 6y ago
    Siri, what is Amazon's P/E ratio?
BelenusMordred 6y ago
What are the "fundamentals" of bitcoin? The only varying metric it has is the denomination you measure it in. Whether that is Venezuelan Bolivars or USD. Everything else is set in stone.
- fragmede 6y ago
  The fundamentals of bitcoin are illegal drug deals and money laundering. We can argue over how much that's worth, given the volume of BTC, and difficulty of the necessary conversion back to currency that banks/landlords/cafes/etc will accept, but that's not zero.
  - vimy 6y ago
    I don’t think that’s accurate anymore. Bitcoin ten years ago was like the www in 1995. Now we have DeFi which runs on crypto. DeFi is to banks what e-commerce was to retail stores in 2000.
    - moneywoes 6y ago
      Can you elaborate on defi please
    - fragmede 6y ago
      To keep the analogies, GP asked if the Internet was useful for anything, I gave one - 'buying pizza on webpages' - and you're objecting to my use of the word 'webpage' vs 'app'. Underneath all the talk of smart contracts running on ETH, behind DApps, the system at large skirts money laundering laws, and that's not a property of the system that conveniently just happened. A big reason for choosing crypto over something boring and normal, ie banks and the whole regulated financial industry, is because it skirts money laundering and other financial regulation, and because it's outside of the regulated financial industry, a lot of users don't believe they have to pay taxes on any gains made. For those that don't believe in the concept of taxes, that's very attractive.
  - smabie 6y ago
    Pretty much all institutional investors disagree with you on that. The institutional flows into btc right now are staggering
sceew 6y ago
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” - Ben Graham This mostly holds true depending on you define 'long run.'
- ryandward 6y ago
  John Maynard Keynes quips that "in the long run we are all dead."
  - sethammons 6y ago
    he also said, "the market can remain irrational longer than you can remain solvent."
    - jakeva 6y ago
      Since we're doing JMK quotes, he also said "Capitalism is the extraordinary belief that he nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all."
      - edgyquant 6y ago
        And that’s why we follow his ideas. Regulated capitalism is the best economic system (so far.)
    - FabHK 6y ago
      Apparently, that nice bon mot is from A. Gary Shilling from the 1980s. https://quoteinvestigator.com/2011/08/09/remain-solvent/ https://quoteinvestigator.com/2011/08/09/remain-solvent/
- rory 6y ago
  It seems "the long run" in the context of this quote is getting longer over the past 20 years (or more), with high multiples and companies that won't return the capital invested in them for many, many years, even in optimistic scenarios. Does that mean the weighing part is becoming less important, and the voting part more so?
FabHK 6y ago
Well. If you hold the stock for long enough, over time its fundamental value will be realised. To mangle something that Lincoln probably never said: All the stock prices can be somewhat wrong for some time, and some stock prices can be very wrong all the time, but all stock prices can't be very wrong all the time.
pietrovismara 6y ago
The stock market, or Astrology for men.

wesammikhail 6y ago

You´re right in the short term. But in the long term the hope is that things average out and true value emerges as a function of countless transactions over years and years. Markets are a value ascribing heuristic machine. There is nothing about them that can deterministically point to objective value. However, the idea is that over a longer period of time, an approximation of true value emerges though wisdom of the crowd.

AznHisoka 6y ago
But what if retail investors start to make up a larger % of investors? Then the dominant philosophy is hype, popularity and trying to sell to a greater fool. This is already happening: retail investors are growing in number. Originally, when institutions were the major players, stock prices followed fundamentals because most ppl cared about the revenue, earnings and cash flow. But what happens when the demographics change?
- Infinitesimus 6y ago
  How confident are you that they followed fundamentals in any original setting? "Fundamentals" is just a collection of metrics and patterns a certain class of investor believes in. Usually those with most money and thus, power. I think you have a rosier view of what drives most of our markets than what happens in reality. Look at the dot com bubbles. Look at how HFT firms make money by exploiting the tiniest of pricing discrepancies and leveraging them heavily. Or perhaps "analyst reports" that can make or break a stock because one person believes something and we give them a megaphone. We switched focuse from present earnings to forward looking revenue. We have stock buybacks. We applied large multiples to financially unsustainable businesses because "maybe one day they can monetize these millions of users with Ads". etc. etc. The GFC was a game of trying to sell to the greater fool and involved intentional manipulation at the highest levels. It seems the system has been has always had these holes and it was "ok" until regular folks began to identify and act on these opportunities. We likely wouldn't be having this conversation if another large hedge fund was making the play retail investors are today. We'd read articles talking about the public battle of the billions. Reminds me of anytime a govt entity creates & exploits a backdoor and is surprised when other actors use the same door for their own activities.
  - AznHisoka 6y ago
    No rosy view - hedge funds and algos follow momentum and copy each other as well. I actually agree with some of your points but was questioning OP. Sometimes I ask questions and present a counter-argument to understand another viewpoint better, not because it’s what I believe in.
Thrymr 6y ago
"In the short run, the market is a voting machine but in the long run, it is a weighing machine" attributed to Benjamin Graham
SomewhatLikely 6y ago
I would say it's more than a hope. Any trader whose strategy is closer to optimal will have larger profits over time and come to own a larger and larger fraction of the market. Though saying that out loud makes me realize optimal doesn't have to mean buying and selling according to true value. Optimal would in fact be predicting the behavior of other participants and trading off those predictions. I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock.
- lordnacho 6y ago
  > I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock. Those things are themselves the product of the market price, it's not a one way street. This is what Soros' reflexivity is about.
- dash2 6y ago
  "It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees." Keynes, 1936.
walleeee 6y ago
> Markets are a value ascribing heuristic machine. There is nothing about them that can deterministically point to objective value. However, the idea is that over a longer period of time, an approximation of true value emerges though wisdom of the crowd. It's a beautiful idea in principle. Ultimately the reality that emerges will reflect the underlying values of the society. Really makes you wonder about our values, given that presently emerging realities include an increasingly inhospitable homeworld.

nerfhammer 6y ago

but a stock is partial ownership of a real business, which has revenue and owns other assets

shadowgovt 6y ago
What that means tangibly varies from business to business. You might get a cut of the profits in the form of dividends... unless you don't. Plenty of stocks never pay dividends. A lot of companies pay more to charity than to dividends to investors. Or, you get a vote on company policy at the stockholder's meeting... But if the founders own more than half the stock, that doesn't actually matter. And that's assuming the founders haven't just sold stock with no voting privileges. If the company files for Chapter 7 bankruptcy, stock owners are entitled to company assets... And almost never see any, because they're last in line behind every other creditor. So it's unclear what, precisely, the practical weight of "partial ownership in a real business" has in general. In specific, sure; stock could be access to dividends or a meaningful voice in company policy. For a lot of stock, the only real value is "How much will someone else pay me for this piece of the action?"
- acover 6y ago
  Aren't there minority shareholder rights, which give you the right to sue if they do something against your interest?
cwkoss 6y ago
That is true for businesses with "reasonable" P/E multiples of ~5 or less. When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings. It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.
- erichocean 6y ago
  Siri, what is Amazon's P/E ratio?

BelenusMordred 6y ago

What are the "fundamentals" of bitcoin? The only varying metric it has is the denomination you measure it in. Whether that is Venezuelan Bolivars or USD. Everything else is set in stone.

fragmede 6y ago
The fundamentals of bitcoin are illegal drug deals and money laundering. We can argue over how much that's worth, given the volume of BTC, and difficulty of the necessary conversion back to currency that banks/landlords/cafes/etc will accept, but that's not zero.
- vimy 6y ago
  I don’t think that’s accurate anymore. Bitcoin ten years ago was like the www in 1995. Now we have DeFi which runs on crypto. DeFi is to banks what e-commerce was to retail stores in 2000.
  - moneywoes 6y ago
    Can you elaborate on defi please
  - fragmede 6y ago
    To keep the analogies, GP asked if the Internet was useful for anything, I gave one - 'buying pizza on webpages' - and you're objecting to my use of the word 'webpage' vs 'app'. Underneath all the talk of smart contracts running on ETH, behind DApps, the system at large skirts money laundering laws, and that's not a property of the system that conveniently just happened. A big reason for choosing crypto over something boring and normal, ie banks and the whole regulated financial industry, is because it skirts money laundering and other financial regulation, and because it's outside of the regulated financial industry, a lot of users don't believe they have to pay taxes on any gains made. For those that don't believe in the concept of taxes, that's very attractive.
- smabie 6y ago
  Pretty much all institutional investors disagree with you on that. The institutional flows into btc right now are staggering

sceew 6y ago

“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” - Ben Graham This mostly holds true depending on you define 'long run.'

ryandward 6y ago
John Maynard Keynes quips that "in the long run we are all dead."
- sethammons 6y ago
  he also said, "the market can remain irrational longer than you can remain solvent."
  - jakeva 6y ago
    Since we're doing JMK quotes, he also said "Capitalism is the extraordinary belief that he nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all."
    - edgyquant 6y ago
      And that’s why we follow his ideas. Regulated capitalism is the best economic system (so far.)
  - FabHK 6y ago
    Apparently, that nice bon mot is from A. Gary Shilling from the 1980s. https://quoteinvestigator.com/2011/08/09/remain-solvent/ https://quoteinvestigator.com/2011/08/09/remain-solvent/
rory 6y ago
It seems "the long run" in the context of this quote is getting longer over the past 20 years (or more), with high multiples and companies that won't return the capital invested in them for many, many years, even in optimistic scenarios. Does that mean the weighing part is becoming less important, and the voting part more so?

FabHK 6y ago

Well. If you hold the stock for long enough, over time its fundamental value will be realised. To mangle something that Lincoln probably never said: All the stock prices can be somewhat wrong for some time, and some stock prices can be very wrong all the time, but all stock prices can't be very wrong all the time.

pietrovismara 6y ago

The stock market, or Astrology for men.