4 ms·

> A while back I invested in 3M because it's a company that makes so many amazing and industry leading products and I thought they'd do well. A couple years lat

by jlebar 4y ago

> A while back I invested in 3M because it's a company that makes so many amazing and industry leading products and I thought they'd do well. A couple years later and the stock is just lagging. The relevant question isn't whether they make great products, but whether their stock is undervalued. We in the tech world are used to "great products" -> "stock price always goes up", but in the "real world" there's no reason for that to be true. "Stock price goes up" should, from an efficient-markets PoV, reflect new information.

t_mann 4y ago
And an efficient-market-PoV should, from an investor PoV, be put back on the shelve together with the other econ fairy tales like general equilibrium, rationality,... There's a reason funds prefer to hire STEM PhDs over economists.
- dTal 4y ago
  No. An "efficient-market-PoV" isn't equivalent to the statement "the market is always 100% efficient", and in fact the entire concept of speculative investing is in fact predicated on this. If you want to beat the market, you must find the place where the market is inefficient, and the only way you can do that is if you know something that everyone else does not know. The "efficient-market-PoV" in this instance is simply - is an observation that 3M makes good products likely to constitute information that is not already factored into the stock price?
  - tdullien 4y ago
    It's a good idea to read up on the history of the efficient market hypothesis, and how Fama came to it. There's also different tiers with different layers of credibility. Base tier (and the one pretty much everybody can agree on): The expected value of the error of the market is zero. This means that the market does not always fundamentally overvalue or undervalue assets, and that, over time, it will overvalue things as often as undervalue. (... many intermediate forms ...) Strong efficient market hypothesis: The market price always reflects all accessible information, and every market movement is driven by new information. The strong efficient market hypothesis is pretty evidently wrong (the existence of all the various quant funds that are generating outsize returns is strong evidence; it would also mean there are no stock bubbles. Having lived through 2 bubbles in my life, I can tell you: Bubbles exist, and there are many forces outside of new information that lead to them inflating and popping).
derefr 4y ago
New great products, in blue-ocean markets, creating new revenue sources, aren’t enough? For companies the size of 3M that “do everything”, do market traders just price in a certain stable rate of predicted innovation leading to geometric revenue growth / monopoly positioning / etc?
- singlow 4y ago
  The current price is based on the predicted earnings growth. Everyone expects 3M to have earnings growth and that expectation is already baked in. The price is only going to spike if something unexpected happens. Growth would have to exceed expectations.

by jlebar 4y ago

t_mann 4y ago

And an efficient-market-PoV should, from an investor PoV, be put back on the shelve together with the other econ fairy tales like general equilibrium, rationality,... There's a reason funds prefer to hire STEM PhDs over economists.

dTal 4y ago
No. An "efficient-market-PoV" isn't equivalent to the statement "the market is always 100% efficient", and in fact the entire concept of speculative investing is in fact predicated on this. If you want to beat the market, you must find the place where the market is inefficient, and the only way you can do that is if you know something that everyone else does not know. The "efficient-market-PoV" in this instance is simply - is an observation that 3M makes good products likely to constitute information that is not already factored into the stock price?
- tdullien 4y ago
  It's a good idea to read up on the history of the efficient market hypothesis, and how Fama came to it. There's also different tiers with different layers of credibility. Base tier (and the one pretty much everybody can agree on): The expected value of the error of the market is zero. This means that the market does not always fundamentally overvalue or undervalue assets, and that, over time, it will overvalue things as often as undervalue. (... many intermediate forms ...) Strong efficient market hypothesis: The market price always reflects all accessible information, and every market movement is driven by new information. The strong efficient market hypothesis is pretty evidently wrong (the existence of all the various quant funds that are generating outsize returns is strong evidence; it would also mean there are no stock bubbles. Having lived through 2 bubbles in my life, I can tell you: Bubbles exist, and there are many forces outside of new information that lead to them inflating and popping).

derefr 4y ago

New great products, in blue-ocean markets, creating new revenue sources, aren’t enough? For companies the size of 3M that “do everything”, do market traders just price in a certain stable rate of predicted innovation leading to geometric revenue growth / monopoly positioning / etc?

singlow 4y ago
The current price is based on the predicted earnings growth. Everyone expects 3M to have earnings growth and that expectation is already baked in. The price is only going to spike if something unexpected happens. Growth would have to exceed expectations.