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The price of something is what people are willing to pay for it. Those formulas that you use to conclude their value is speculative are prescriptive and mostly
by epups 4y ago
The price of something is what people are willing to pay for it. Those formulas that you use to conclude their value is speculative are prescriptive and mostly antiquated. It is almost impossible to separate "real" from speculative value.
- andrewmcwatters 4y agoIt really isn’t, and the math is quite literally comparable to calculating the coupon of a bond. It’s people repeating this idea that math has suddenly changed within the last 20 years or something that is ridiculous.
- epups 4y agoOk, then you use your math to buy stocks and I'll use my definition, which is the one accepted by everyone else. I'll gladly be here with the idiots making bank, buying my overpriced index funds while you wait for them to return to their platonic price.
- citizen_friend 4y ago> which is the one accepted by everyone else The field of finance studies how to value various assets, beginning with fixed cash flows over time, and then introducing things like risk.
- epups 4y agoI can't find information about this field on Google. Can you point me to a reference that contradicts any of what I said?
- citizen_friend 4y agohttps://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Time_value_of_money https://en.wikipedia.org/wiki/Valuation_using_discounted_cash_flows https://en.wikipedia.org/wiki/Valuation_using_discounted_cas...
- andrewmcwatters 4y agoReductio ad absurdum: would you spend one million US dollars to make one dollar a year? No, that's clearly foolish. Would you spend one US dollar to make a million a year? Of course, but what such investments would ever exist? And so instruments which bare gains over time have some value, which is calculated by the means of cost of investment to returns over time. If there are a market of such instruments, they can and will be in competition with each other. This "things are only what people value them at" stuff is for the birds. Those other people you're talking about are actually calculating their investments. Others with such mentality will follow, not knowing what they're doing, and taking missteps when the goods are already gone. What you think is "accepted by everyone else" is what you're seeing at face value. There are reasons behind actions. Those actions in and of themself have no meaning without context. The mathematics of investment have never, ever changed in any meaningful way. The history of debts, interest rates, and returns have always fluctuated, but the math hasn't. Anyone suggesting otherwise is uninformed.
- epups 4y agoThe problem is that the future is uncertain, and price is guided by feelings and impressions. People think Tesla is a great company for a variety of reasons that have nothing to do with math. They trust Elon Musk, they think Tesla has a technological advantage, etc. Of course a lot of people also look at balance sheets and hard facts before making a purchase. The price of Tesla's stock is composed of the coordinated actions of all these people. It turns out that adhering to your narrow idea of value does not help you accurately predict the price of a stock, or even the market as a whole for that matter.
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- Galanwe 4y ago> It really isn’t, and the math is quite literally comparable to calculating the coupon of a bond. There is no math that claims the price of a stock should be some form of discounted future cashflows since at least the 90s. Since then, all models have been multifactor ones, with fundamentals (quality, value) being only one fragment of the market, sector and country residualized stock returns. What `epups` is explaining to you is the basis of behavioral economics, which is the de facto current leading theory since its foundations were Nobel prized 20 years ago...