38 ms·

Yes we do, that's literally what a marketcap is. People who are sure it isn't correct can beat against it and profit in the correction.

googlryas 4y ago
Not exactly, because you need to look at depth of market as well. If I find one idiot to buy 1 share of my stock (out of a trillion) for $1, that doesn't mean I really have a $1T market cap.
nicoburns 4y ago
> Yes we do, that's literally what a marketcap is. I mean in theory. In practice: - You have to use a very specialised definition of "we". Specifically, it's what people think, weighted by how much money they control. So wealthy people have an outsized say in market cap. Controllers of hedge funds, pension funds, etc an even more outsized say. - People's pricing can be based on how they expect other people to price the stock in the future rather than how much they think it is truly worth based on the fundamentals of the business. If someone's price is based on this, then it is no longer a reflection of how much they think it's worth.
The_Colonel 4y ago
Shorting is much more risky than buying stocks. Compare: 1) I'm confident that in the long term, company X will grow in value. I invest $1000 and will wait however long it will take, 10 or more years. I risk these $1000 only, but can earn multiple of it. 2) I'm confident that in the long term, company Y will decrease in value. I can short it with $1000, however either I risk much more than $1000 or I can't set the timeframe (because of forced liquidation). I also can't earn more than $1000. In the long term, I'm also exposed to inflation. Effectively, it's possible to short only in a short timescale, which is super risky. The two betting options are very asymmetric, which IMHO favors overvaluation of certain hyped stocks, since there's no reasonable (not extremely risky) way to bet against them.
- game-of-throws 4y ago
  There are ways to bet against stocks that don't expose you to unlimited downside.
  - The_Colonel 4y ago
    Do you have more information? I'm interested.
    - game-of-throws 4y ago
      Options. https://www.investopedia.com/terms/p/put.asp https://www.investopedia.com/terms/p/put.asp
      - ericd 4y ago
        The timing aspect is still brutal, though. Market can stay irrational for a very long time, and prove you totally right but totally broke if it waits until after your puts expire.
  - deleted 4y ago
    [deleted]
ClumsyPilot 4y ago
> People who are sure it isn't correct can beat against it and profit in the correction. the market can stay crazy lobger than you can stay solvent. You losses in shorting are unlimited. Every i vestor from Warren Buffet to my dog strongly advises against shorting
- myownpetard 4y ago
  > You losses in shorting are unlimited. Buy puts. > Every i vestor from Warren Buffet to my dog strongly advises against shorting If you are not sophisticated enough to take a short position, you are probably not sophisticated enough to buy a specific equity. This is true of essentially everyone who does not invest professionally, including myself.
wavefunction22 4y ago
I think market cap is a bit misleading. Enterprise value (market cap + net debt) is a more consistent valuation measure. The house analogy is a helpful one. Let's say I buy a million dollar house but I only have $100K of equity in it so far. My market cap is $100K and my debt is $900K. I'd argue that the house is still worth a million dollars. This is important here since Tesla has much less debt vs. the rest of the auto industry.
- 300bps 4y ago
  Market cap should take into consideration debt and all other valuation variables of a company. It’s literally what people are saying the company is worth. If you subtract debt from market cap to get the value of a company you’ll be subtracting debt twice. Your house analogy and the way you explained it does not make sense to me. Since market cap is what the market is saying a company is worth, it isn’t right to equate that to the “$100k of equity” in your example house. It’s more correct to equate it to the $1 million value the house has.
  - wavefunction22 4y ago
    Market cap isn't saying what the 'company' is worth. It's a measure of the equity portion of the ownership of the company. It excludes the debt portion of the ownership. Right now GM has an enterprise value of $130B. That means it's expected to spit out $130B of cash over its lifetime (discounted to a present day value). But the market cap is only $50B. Meaning $80B of that future cash will go to GM's lenders. It of course feels super counter-intuitive to add debt (which feels like it should be a negative) to the valuation. But I always felt the house analogy gives an intuitive everyday example.
- tsimionescu 4y ago
  But they also have far, far fewer assets, and even farther fewer actual cars.
JonShartwell 4y ago
Does the word “correction” not imply that the previous price was incorrect?
zaroth 4y ago
You might be surprised to learn that ‘Equity Market Cap’ is not the only variable in the full equation which states a company’s value! When you discover the second variable, you might also discover that Tesla’s ‘Equity Market Cap’ makes a lot more sense vis a vis the other top auto manufacturers based on the scale of that other variable in the valuation equation for those other companies.

googlryas 4y ago

Not exactly, because you need to look at depth of market as well. If I find one idiot to buy 1 share of my stock (out of a trillion) for $1, that doesn't mean I really have a $1T market cap.

nicoburns 4y ago

> Yes we do, that's literally what a marketcap is. I mean in theory. In practice: - You have to use a very specialised definition of "we". Specifically, it's what people think, weighted by how much money they control. So wealthy people have an outsized say in market cap. Controllers of hedge funds, pension funds, etc an even more outsized say. - People's pricing can be based on how they expect other people to price the stock in the future rather than how much they think it is truly worth based on the fundamentals of the business. If someone's price is based on this, then it is no longer a reflection of how much they think it's worth.

The_Colonel 4y ago

Shorting is much more risky than buying stocks. Compare: 1) I'm confident that in the long term, company X will grow in value. I invest $1000 and will wait however long it will take, 10 or more years. I risk these $1000 only, but can earn multiple of it. 2) I'm confident that in the long term, company Y will decrease in value. I can short it with $1000, however either I risk much more than $1000 or I can't set the timeframe (because of forced liquidation). I also can't earn more than $1000. In the long term, I'm also exposed to inflation. Effectively, it's possible to short only in a short timescale, which is super risky. The two betting options are very asymmetric, which IMHO favors overvaluation of certain hyped stocks, since there's no reasonable (not extremely risky) way to bet against them.

game-of-throws 4y ago
There are ways to bet against stocks that don't expose you to unlimited downside.
- The_Colonel 4y ago
  Do you have more information? I'm interested.
  - game-of-throws 4y ago
    Options. https://www.investopedia.com/terms/p/put.asp https://www.investopedia.com/terms/p/put.asp
    - ericd 4y ago
      The timing aspect is still brutal, though. Market can stay irrational for a very long time, and prove you totally right but totally broke if it waits until after your puts expire.
- deleted 4y ago
  [deleted]

ClumsyPilot 4y ago

> People who are sure it isn't correct can beat against it and profit in the correction. the market can stay crazy lobger than you can stay solvent. You losses in shorting are unlimited. Every i vestor from Warren Buffet to my dog strongly advises against shorting

myownpetard 4y ago
> You losses in shorting are unlimited. Buy puts. > Every i vestor from Warren Buffet to my dog strongly advises against shorting If you are not sophisticated enough to take a short position, you are probably not sophisticated enough to buy a specific equity. This is true of essentially everyone who does not invest professionally, including myself.

wavefunction22 4y ago

I think market cap is a bit misleading. Enterprise value (market cap + net debt) is a more consistent valuation measure. The house analogy is a helpful one. Let's say I buy a million dollar house but I only have $100K of equity in it so far. My market cap is $100K and my debt is $900K. I'd argue that the house is still worth a million dollars. This is important here since Tesla has much less debt vs. the rest of the auto industry.

300bps 4y ago
Market cap should take into consideration debt and all other valuation variables of a company. It’s literally what people are saying the company is worth. If you subtract debt from market cap to get the value of a company you’ll be subtracting debt twice. Your house analogy and the way you explained it does not make sense to me. Since market cap is what the market is saying a company is worth, it isn’t right to equate that to the “$100k of equity” in your example house. It’s more correct to equate it to the $1 million value the house has.
- wavefunction22 4y ago
  Market cap isn't saying what the 'company' is worth. It's a measure of the equity portion of the ownership of the company. It excludes the debt portion of the ownership. Right now GM has an enterprise value of $130B. That means it's expected to spit out $130B of cash over its lifetime (discounted to a present day value). But the market cap is only $50B. Meaning $80B of that future cash will go to GM's lenders. It of course feels super counter-intuitive to add debt (which feels like it should be a negative) to the valuation. But I always felt the house analogy gives an intuitive everyday example.
tsimionescu 4y ago
But they also have far, far fewer assets, and even farther fewer actual cars.

JonShartwell 4y ago

Does the word “correction” not imply that the previous price was incorrect?

zaroth 4y ago

You might be surprised to learn that ‘Equity Market Cap’ is not the only variable in the full equation which states a company’s value! When you discover the second variable, you might also discover that Tesla’s ‘Equity Market Cap’ makes a lot more sense vis a vis the other top auto manufacturers based on the scale of that other variable in the valuation equation for those other companies.