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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

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.

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.