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You have to disbelieve the efficient markets hypothesis to an unreasonable degree to imagine that the kind of information you're talking about isn't baked into

You have to disbelieve the efficient markets hypothesis to an unreasonable degree to imagine that the kind of information you're talking about isn't baked into TSLA. And people certainly forecast -- with varying success -- the future of BTC. You can read their analyses and disagree/agree with them. This isn't to imply that BTC isn't a volatile and risky asset. Of course it is! But some people want to buy volatile and risky assets.

abeppu 4y ago
Given that TSLA has come down by close to half in the past year, yeah I don't think available information was appropriately priced in. There was plenty of room for someone to say "This PE has the wrong number of digits." But because shares are claims on future revenue, their value can be grounded to _something_. My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.
- aetherson 4y ago
  Lots of assets have either no floor on their value or an incredibly low floor. Is it actually a comfort if you invest in gold that it can only lose 98% of its value instead of 100%? Are those two outcomes meaningfully different to you? Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
  - abeppu 4y ago
    Sure, a company can go bankrupt. A bond can be defaulted on. But one can evaluate those risks based on information about those companies and have a principled and fact-based approach to estimating a _value_ rather than merely guessing a _price_. My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself. Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer." In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.
    - aetherson 4y ago
      I feel like you don't actually understand the efficient markets hypothesis. The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money! Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
      - abeppu 4y ago
        I understand and accept everything in your two paragraphs. Nowhere have I asserted that knowledge about a company's past performance is an assurance against future loss. And yes, people with a lot more time, resources and information than I have bake a lot of information into their attempts to establish what an appropriate value is for a share of a publicly traded company. Nowhere in the preceding have I claimed an ability to out-predict wall street. But the fact that people after examining the data can be left with real uncertainty about the future prospects of a company doesn't mean the data doesn't matter. The equivalent data simply does not exist for BTC. Roughly, BTC is being used like shares in a company which owns no assets, has no revenue, gives no dividends, and writes no quarterly reports. Based solely on the price history, trading volume, number of shares outstanding (and constraints on shares issued in the future), and the press, people buy and sell it. To pretend that this in no way limits the ability of people to price BTC in comparison to their ability to do the same for stocks, bonds or other traditional assets seems unhinged.
pencilguin 4y ago
Anybody who doesn't "disbelieve the efficient markets hypothesis" isn't paying attention. NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently. Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.
- aetherson 4y ago
  If you feel that the EMH is wrong to the degree that you're implying, you should go trade stocks on the valuable alpha that you apparently have.
  - pencilguin 4y ago
    "The market can remain irrational longer than you can remain solvent." Irrational is contrary to efficient.
    - aetherson 4y ago
      I know this is old now, but there are two possible answers here: 1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH. 2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
      - pencilguin 4y ago

abeppu 4y ago

Given that TSLA has come down by close to half in the past year, yeah I don't think available information was appropriately priced in. There was plenty of room for someone to say "This PE has the wrong number of digits." But because shares are claims on future revenue, their value can be grounded to _something_. My point is not that BTC is volatile, but that it has no fundamentals. There is only the sentiment of other participants. Tulip bulbs can at least be planted.

aetherson 4y ago
Lots of assets have either no floor on their value or an incredibly low floor. Is it actually a comfort if you invest in gold that it can only lose 98% of its value instead of 100%? Are those two outcomes meaningfully different to you? Companies can go bankrupt and zero the value of their stock. Bonds can be defaulted on. Are you out there evangelizing how stocks and bonds are bad investments?
- abeppu 4y ago
  Sure, a company can go bankrupt. A bond can be defaulted on. But one can evaluate those risks based on information about those companies and have a principled and fact-based approach to estimating a _value_ rather than merely guessing a _price_. My objection to BTC is not that one can get burned. I don't know how to be more clear about this without repeating myself. Suppose I start a new lottery and sell tickets. I announce nothing about the odds of any payout or perhaps even when the drawing will take place, but tickets are finite in number, and are transferable. If you can buy a ticket at auction, how much should you pay? In a different context, I hope people would complain that there is not enough information to answer. But on crypto exchanges, people seem happy to say "I just don't want to pay too much more than the last buyer." In contrast, suppose my friend starts a raffle, selling tickets for a dollar, and makes clear that the pot is exactly one dollar per ticket sold. Yes, anyone buying a ticket can lose 100% of what they put in, but it's also easy to see that the expected value of a ticket is $1. If you have the opportunity to buy a 2nd hand ticket for less than $1, it's in some sense rational to do so, depending on your own risk tolerances. If I try to sell a ticket for $1.25, people can immediately see that it is overpriced. This is entirely consistent with the fact that the outcome for any particular ticketholder is highly variable.
  - aetherson 4y ago
    I feel like you don't actually understand the efficient markets hypothesis. The point of all this information being baked into the price of an asset is not that the market is particularly correct -- surprises certainly happen. It's that you don't really profit from all that knowledge. You say, "Oh, well, I know that this company has such-and-such a balance sheet." But everyone else knows that as well (and, in fact, knows more about the health of that company because they have access to semi-private information and/or just more expertise about that economic sector than you do), and if you go, "Hey, I want to buy this stock because their business seems strong," you already have to pay the premium for their business being strong, and their expected growth, such that you're pretty much purely buying risk now, not the strong company. If they profit, but not quite as much as expected, you lose money. Potentially a lot of money! Meta is down 65% this year. That's on $27B in quarterly revenue and $4.39B in quarterly profit! And it's down 65%! Let's be real: you didn't look at Meta's financials at the beginning of this year and realize that your investment there would be down 65%. What's the floor on Meta? I mean, nobody actually knows. They have a lot of revenue, but you can always get a lot of debt and have that eat your revenue up. I'm inclined to be optimistic about Meta -- but so is the market, that's why it's at $310B market cap. If I buy now, could it lose another 65% value and be at a "mere" $100B market cap? Sure.
    - abeppu 4y ago
      I understand and accept everything in your two paragraphs. Nowhere have I asserted that knowledge about a company's past performance is an assurance against future loss. And yes, people with a lot more time, resources and information than I have bake a lot of information into their attempts to establish what an appropriate value is for a share of a publicly traded company. Nowhere in the preceding have I claimed an ability to out-predict wall street. But the fact that people after examining the data can be left with real uncertainty about the future prospects of a company doesn't mean the data doesn't matter. The equivalent data simply does not exist for BTC. Roughly, BTC is being used like shares in a company which owns no assets, has no revenue, gives no dividends, and writes no quarterly reports. Based solely on the price history, trading volume, number of shares outstanding (and constraints on shares issued in the future), and the press, people buy and sell it. To pretend that this in no way limits the ability of people to price BTC in comparison to their ability to do the same for stocks, bonds or other traditional assets seems unhinged.

pencilguin 4y ago

Anybody who doesn't "disbelieve the efficient markets hypothesis" isn't paying attention. NRGV ("Energy Vault") was trading at a $2.4B market cap less than a year ago, and are now at $0.4B, still radically overpriced. Their product was an obvious scam before, then they pivoted to another obvious scam. The only way their stock could have any legitimate value would be if they still had $0.4B in cash, and could be prevented from squandering it. All perfectly legal, apparently. Same for fusion startups. (It is just barely possible that Helion could have value.) Kyoto Fusioneering builds equipment to use in fusion startups' sham demos, and provides a conduit for dumb VC money into the pockets of startup founders and VCs who invest in it. All perfectly legal, apparently.

aetherson 4y ago
If you feel that the EMH is wrong to the degree that you're implying, you should go trade stocks on the valuable alpha that you apparently have.
- pencilguin 4y ago
  "The market can remain irrational longer than you can remain solvent." Irrational is contrary to efficient.
  - aetherson 4y ago
    I know this is old now, but there are two possible answers here: 1. If you mean, "the market will not in fact go to the stock price that I think is correct in a time window that anyone can remain solvent for and perhaps ever," then what you are saying is you believe the EMH. 2. If you are instead saying that you are a small fish and big fish could play this scheme successfully, absorbing relatively small fluctuations, then, I mean, go pitch Jane Street in your brilliant approach of "look at the financials." (Obviously, you won't get anywhere because, spoiler warning, they already do this, and it's priced in).
    - pencilguin 4y ago