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This example is misplaced because it illustrates the wrong conclusion based on an unrealistic scenario and doesn't factor in interest rates. When future earning

This example is misplaced because it illustrates the wrong conclusion based on an unrealistic scenario and doesn't factor in interest rates. When future earnings are estimated, it's almost never nominal (except for specific big contracts), but in real value. And with a real value future earning, high inflation / low interest rate actually helps it retain value and boosts those future earnings price. Whereas the real value today gets those $100, but has nowhere safe to earn interest and is instead inflated away. So in time of high inflation, low interest like we had, we saw these growth stocks value fly high. But now there's uncertainty where we might shift into the environment of medium inflation, medium interest, which changes how those growth stocks are valued back to normal. I guess ultimately you're assuming interest rates or staying with inflation, but they don't and it's actually interest that's the bigger factor.

deleted 5y ago
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dragontamer 5y ago
Let's use a realistic example then. In 2014, Tesla raised a ton of money from the stock market to build the Model 3 factory / giga factory. Over the next few years, in a low inflation and low interest rate environment, the investors won. The factory was built, and years later the Model 3 was released to the public. ---------- How would things have changed if large inflation occurred in 2015 or 2016? The factory would have cost 5% or 15% more than expected, and the money raised in 2014 may have not been sufficient. The 2014 dollars raised are used to buy a factory in 2015 or 2016. That's just how companies work. If inflation changes the price of the factory years later, that absolutely affects the investors. The 2014 understanding of factory prices would be wrong, revised later and everyone would make less money in the long run. ------ EDIT: With less effective money (due to increased factory prices), the Growth company will either have to raise more money (ie: dilute the shares and split future earnings with more investors), or build a smaller factory (ie: lowering the amount of future production). Either way, the investors would have lost our on future earnings, roughly coinciding with inflation (ie: how much more the factory cost)

deleted 5y ago

[deleted]

dragontamer 5y ago

Let's use a realistic example then. In 2014, Tesla raised a ton of money from the stock market to build the Model 3 factory / giga factory. Over the next few years, in a low inflation and low interest rate environment, the investors won. The factory was built, and years later the Model 3 was released to the public. ---------- How would things have changed if large inflation occurred in 2015 or 2016? The factory would have cost 5% or 15% more than expected, and the money raised in 2014 may have not been sufficient. The 2014 dollars raised are used to buy a factory in 2015 or 2016. That's just how companies work. If inflation changes the price of the factory years later, that absolutely affects the investors. The 2014 understanding of factory prices would be wrong, revised later and everyone would make less money in the long run. ------ EDIT: With less effective money (due to increased factory prices), the Growth company will either have to raise more money (ie: dilute the shares and split future earnings with more investors), or build a smaller factory (ie: lowering the amount of future production). Either way, the investors would have lost our on future earnings, roughly coinciding with inflation (ie: how much more the factory cost)