4 ms·
I wonder if we reach a point where the concept of "mispriced" stops really making sense? Because when you say a stock is undervalued, isn't what you're really
by entuno 1y ago
I wonder if we reach a point where the concept of "mispriced" stops really making sense?
Because when you say a stock is undervalued, isn't what you're really saying is that you think it's value with increase at a higher rate than the rest of the index in future, because it will attract above-average rates of investment from other active investors? Or to put it another way, "in the future more people will want to buy this stock than other stocks, so its value will go up".
But if everyone else is the market is investing passively, where does disproportionate future demand come from?
- wing-_-nuts 1y agoI think maybe you should go back to first principles. Why does a share of a company have any value? Well, if you buy 10% of the stock of widget co, you presumably get 10% of it's earnings, be that through dividends, share buy backs, etc. It's stock price will reflect that. It also reflects the future potential growth. For some companies, (utilities, etc) there isn't much future growth so the price is mostly a function of it's ability to pay out dividends. For a tech startup, they're not paying out dividends any time soon and the price reflects it's potential to someday be BigCo with massive earnings and massive dividends. There will always be active investors trying to beat the market, and they aid in price discovery.
- entuno 1y agoSo you think that active investors would shift much more towards trying to make money from dividends, rather than from speculation on the future share price?
- wing-_-nuts 1y agoNo, I think active investors make money from trying to find over/under priced equities, and the value of those stocks is inherently a function of current and future returns.