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> The stock market is a system that enables the buying and selling of shares in productive business Ostensibly, yes. But in practice stocks are often pretty di

> The stock market is a system that enables the buying and selling of shares in productive business Ostensibly, yes. But in practice stocks are often pretty disconnected from business realities by algorithmic trading and high-frequency trading. Even manual trades made on a snap basis like a mass sales on a company posting a slightly less than stellar quarter on the back of a proven long-term, solid, growing business: is that company really "worth" 10% less today? Especially since that "value" is then often recouped even before the next quarterly report. Most companies can't even explain many of their own stock price moves.

adventured 5y ago
> Ostensibly, yes. But in practice stocks are often pretty disconnected from business realities by algorithmic trading and high-frequency trading. No they're not. Only short-term to a limited extent and only to an extreme in very rare cases. High frequency trading is a laughable triviality to a long-term investor, entirely meaningless. It only matters if you're trading a lot of volume and they're swiping some of your profit by moving faster. I don't care if they take 0.1% of the present value of my trade if I'm buying a stock to hold for years (or if I'm buying at a steep discount to what I value the company at). I buy Teladoc at $61.22 and I plan to hold for years - do I care if HFT swipes $0.02 of that trade? No. I don't care if it swipes $0.20 of that trade in fact. If you're doing it right, if you're calculating the margin for error in the purchase correctly in terms of the value you're buying, you can very easily disregard the margin that that $0.20 represents. That is to say, if a stock isn't a good buy at $61.22, it's not a good buy at $61 either. There's no scenario where I'm going to care about HFT. I also don't base my purchases on what the market (other investors, whether algorithmic or not) thinks a stock is worth. I make my own determination of the worth of the business, its potential, and from there I decide if the current price matches up with the value I think the business represents. As such algorithmic manipulation largely doesn't matter to me, I don't care if they run a stock up or down 5% tomorrow or next week, it doesn't alter my evaluation of what the business is worth; although if they want to crash a good stock by 70% in a few weeks because some people panic and hit the sell button, prompting a cascade of selling, due to something like Covid, then I'm a buyer, I'll happily take advantage of their mistake. > Most companies can't even explain many of their own stock price moves. Again, you're talking about shorter-term volatility, spikes, blips, temporary emotional swings up or down. As a long-term value investor, I don't care much about short-term volatility and will never have to (other than if it happens to provide a rare, freakishly outsized, emotion-based buying or selling opportunity to take advantage of; as with the Covid crash). As an owner, shorter-term concerns, swings, are largely meaningless to me. As they should be to most investors. Why do I care if a company can explain stray volatile stock price movements? That's not the business I want them to be specializing in. I have no need of their explanations unless it's a critical legal matter. Read their quarterly reports, figure out their business and its long-term trajectory - that's what you're properly buying, not the explanation by public relations on the daily movement of the stock.
xadhominemx 5y ago
> in practice stocks are often pretty disconnected from business realities by algorithmic trading and high-frequency trading If you are an HFT and you are noticeably impacting the price of a stock, you are losing a ton of money very quickly > mass sales on a company posting a slightly less than stellar quarter on the back of a proven long-term, solid, growing business: is that company really "worth" 10% less today? This is a very easy theory to test. If you think it’s true, just buy every stock that’s down 10% on earnings (it’s obviously not true as such a strategy would have been exploited by hedge funds decades ago)

adventured 5y ago

> Ostensibly, yes. But in practice stocks are often pretty disconnected from business realities by algorithmic trading and high-frequency trading. No they're not. Only short-term to a limited extent and only to an extreme in very rare cases. High frequency trading is a laughable triviality to a long-term investor, entirely meaningless. It only matters if you're trading a lot of volume and they're swiping some of your profit by moving faster. I don't care if they take 0.1% of the present value of my trade if I'm buying a stock to hold for years (or if I'm buying at a steep discount to what I value the company at). I buy Teladoc at $61.22 and I plan to hold for years - do I care if HFT swipes $0.02 of that trade? No. I don't care if it swipes $0.20 of that trade in fact. If you're doing it right, if you're calculating the margin for error in the purchase correctly in terms of the value you're buying, you can very easily disregard the margin that that $0.20 represents. That is to say, if a stock isn't a good buy at $61.22, it's not a good buy at $61 either. There's no scenario where I'm going to care about HFT. I also don't base my purchases on what the market (other investors, whether algorithmic or not) thinks a stock is worth. I make my own determination of the worth of the business, its potential, and from there I decide if the current price matches up with the value I think the business represents. As such algorithmic manipulation largely doesn't matter to me, I don't care if they run a stock up or down 5% tomorrow or next week, it doesn't alter my evaluation of what the business is worth; although if they want to crash a good stock by 70% in a few weeks because some people panic and hit the sell button, prompting a cascade of selling, due to something like Covid, then I'm a buyer, I'll happily take advantage of their mistake. > Most companies can't even explain many of their own stock price moves. Again, you're talking about shorter-term volatility, spikes, blips, temporary emotional swings up or down. As a long-term value investor, I don't care much about short-term volatility and will never have to (other than if it happens to provide a rare, freakishly outsized, emotion-based buying or selling opportunity to take advantage of; as with the Covid crash). As an owner, shorter-term concerns, swings, are largely meaningless to me. As they should be to most investors. Why do I care if a company can explain stray volatile stock price movements? That's not the business I want them to be specializing in. I have no need of their explanations unless it's a critical legal matter. Read their quarterly reports, figure out their business and its long-term trajectory - that's what you're properly buying, not the explanation by public relations on the daily movement of the stock.

xadhominemx 5y ago

> in practice stocks are often pretty disconnected from business realities by algorithmic trading and high-frequency trading If you are an HFT and you are noticeably impacting the price of a stock, you are losing a ton of money very quickly > mass sales on a company posting a slightly less than stellar quarter on the back of a proven long-term, solid, growing business: is that company really "worth" 10% less today? This is a very easy theory to test. If you think it’s true, just buy every stock that’s down 10% on earnings (it’s obviously not true as such a strategy would have been exploited by hedge funds decades ago)