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That makes a lot of sense. I think the GME debacle is a good demonstration of that. Shorting stocks is a part of the game. Some people exploited it, others foun

That makes a lot of sense. I think the GME debacle is a good demonstration of that. Shorting stocks is a part of the game. Some people exploited it, others found a counter move. I don’t believe GME is worth what the market currently values it at. But I also don’t see that fundamental value ever matching the market value anytime soon because the market has fully embraced its non-rationality regarding this stock. We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses.

TeMPOraL 6y ago
> But I also don’t see that fundamental value ever matching the market value(...). We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses. I think you're still doing L1/L2 thinking. The way I understand L3, there's no such thing as "fundamental value". There's only market value, that's determined by what people think the market value is. The extent to which it's correlated with real-world performance of a company is limited to how likely other people are to take that performance into account. Ordinarily, enough investors look at the state of the company to give rise to a correlation (if only because otherwise there's nothing external to look at!). Meme stocks are kind of extreme here, in that everyone knows that everyone else knows the stock is being traded on its market value. But that feels to me like a difference of a degree, not of a kind. And at this point I ask myself, how any of that is even useful to the society? Could we decouple the parts that let companies loan money and be accountable to the shareholders, separate them from the part where investors just play their spreadsheet MMOFPS? Or is the former always inherently going to turn into the latter, as people will always game it?
- criticaljudge 6y ago
  But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks. As for the usefulness question: providing liquidity is useful. If an investor considers investing in some project, it helps his decision making if they can be reasonably sure that they will be able to sell their shares later on. And even if it wasn't useful, why would you care what other people do with their money?
  - j4yav 6y ago
    As a shareholder how do you access that value without stock market shenanigans coming into play? The only two that come to mind are companies about to go bankrupt, or a careful focus on dividend value (but dividends may not pay out the value of their static assets without having to sell them.)
    - notahacker 6y ago
      If you've got a company which is worth a billion dollars in assets but is in too unfashionable an industry to be trading at more than half that in stock (and there isn't a more obvious problem you've missed like unsustainable debt), someone will eventually buy it to liquidate those assets, and earn the holders a nice little profit on the way. And value investing is all about the other side of the beauty contest - looking for the companies investors don't think are handsome which are strong enough to end up generating the sort of profits that will eventually lead investors to conclude they're not that ugly after all. The irrationality is more on the upside: tech stocks whose fundamentals make little sense you suspect will go up in value in the short term anyway because of FOMO. A lot of people have made fortunes on those kind of bets, and there are definitely people day trading WSB hyped stocks who don't forget to sell.
    - criticaljudge 6y ago
      By forming an interest group with other shareholders, so that you have enough votes to determine what happens with the companies assets (in an extreme case). You also have some legal rights as a shareholder. I don't know about the US, but for example in my country there is a LEGAL requirement for companies to maximize shareholder value. Few people seem to know when they blame capitalist greed, when really it is a government law. So you can sue the company if you think they mismanage their assets. Of course there are ways for companies to rip off shareholders. I think there is an old Philip Greenspun article about it, iirc he mentions buying expensive furniture and artwork for the offices. I suppose it is part of the due dilligence before investing in a company, to check how they spend their money.
      - IgorPartola 6y ago
- avereveard 6y ago
  > The way I understand L3, there's no such thing as "fundamental value". There's only market value I think control theory works better at describing these factors, as L1-L2-L3 suggest some derivative relations that its's not really there. you have your set point, which is the hard company value. you have n proportional forces, each proportional to the distance from the company current value and that of every put and call on the market. you have a damping effect in the form of HFT, and you have an integrative term, which acts weird because it's applied inversely proportional to the short positions, and it's the lending cost on the short positions.
  - TeMPOraL 6y ago
    Except the whole thing with market being anti-inductive is that you have a non-linear term that's a function of the state of the control system itself! (I didn't want to suggest some derivative relation - just refer to the "perspectives" mentioned in the topmost comment.)

TeMPOraL 6y ago

> But I also don’t see that fundamental value ever matching the market value(...). We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses. I think you're still doing L1/L2 thinking. The way I understand L3, there's no such thing as "fundamental value". There's only market value, that's determined by what people think the market value is. The extent to which it's correlated with real-world performance of a company is limited to how likely other people are to take that performance into account. Ordinarily, enough investors look at the state of the company to give rise to a correlation (if only because otherwise there's nothing external to look at!). Meme stocks are kind of extreme here, in that everyone knows that everyone else knows the stock is being traded on its market value. But that feels to me like a difference of a degree, not of a kind. And at this point I ask myself, how any of that is even useful to the society? Could we decouple the parts that let companies loan money and be accountable to the shareholders, separate them from the part where investors just play their spreadsheet MMOFPS? Or is the former always inherently going to turn into the latter, as people will always game it?

criticaljudge 6y ago
But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks. As for the usefulness question: providing liquidity is useful. If an investor considers investing in some project, it helps his decision making if they can be reasonably sure that they will be able to sell their shares later on. And even if it wasn't useful, why would you care what other people do with their money?
- j4yav 6y ago
  As a shareholder how do you access that value without stock market shenanigans coming into play? The only two that come to mind are companies about to go bankrupt, or a careful focus on dividend value (but dividends may not pay out the value of their static assets without having to sell them.)
  - notahacker 6y ago
    If you've got a company which is worth a billion dollars in assets but is in too unfashionable an industry to be trading at more than half that in stock (and there isn't a more obvious problem you've missed like unsustainable debt), someone will eventually buy it to liquidate those assets, and earn the holders a nice little profit on the way. And value investing is all about the other side of the beauty contest - looking for the companies investors don't think are handsome which are strong enough to end up generating the sort of profits that will eventually lead investors to conclude they're not that ugly after all. The irrationality is more on the upside: tech stocks whose fundamentals make little sense you suspect will go up in value in the short term anyway because of FOMO. A lot of people have made fortunes on those kind of bets, and there are definitely people day trading WSB hyped stocks who don't forget to sell.
  - criticaljudge 6y ago
    By forming an interest group with other shareholders, so that you have enough votes to determine what happens with the companies assets (in an extreme case). You also have some legal rights as a shareholder. I don't know about the US, but for example in my country there is a LEGAL requirement for companies to maximize shareholder value. Few people seem to know when they blame capitalist greed, when really it is a government law. So you can sue the company if you think they mismanage their assets. Of course there are ways for companies to rip off shareholders. I think there is an old Philip Greenspun article about it, iirc he mentions buying expensive furniture and artwork for the offices. I suppose it is part of the due dilligence before investing in a company, to check how they spend their money.
    - IgorPartola 6y ago
avereveard 6y ago
> The way I understand L3, there's no such thing as "fundamental value". There's only market value I think control theory works better at describing these factors, as L1-L2-L3 suggest some derivative relations that its's not really there. you have your set point, which is the hard company value. you have n proportional forces, each proportional to the distance from the company current value and that of every put and call on the market. you have a damping effect in the form of HFT, and you have an integrative term, which acts weird because it's applied inversely proportional to the short positions, and it's the lending cost on the short positions.
- TeMPOraL 6y ago
  Except the whole thing with market being anti-inductive is that you have a non-linear term that's a function of the state of the control system itself! (I didn't want to suggest some derivative relation - just refer to the "perspectives" mentioned in the topmost comment.)