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> The value of most stocks in companies is overrated. If the Efficient Market Hypothesis is true (it's certainly approximately true), then most stocks, most of

by lutusp 13y ago

> The value of most stocks in companies is overrated. If the Efficient Market Hypothesis is true (it's certainly approximately true), then most stocks, most of the time, have exactly the value they ought to have. So no, on average, stocks aren't overrated and investors aren't fools.

Xylakant 13y ago
I'm not talking about the general market of publicly traded companies where your theory applies. I'm talking about the subset of startup companies that typically offer shares instead of payment to employes. A lot of those are not or only partially investor backed. Even of those that are, most fail, their stock value effectively nil. Of the rest, a large share basically just breaks even which makes their stock pretty much untradeable since practically nobody wants to buy shares in a company that will probably never have a large growth. The tiny tiny rest grows in leaps and bounds and is the next google/facebook/, the stock value multiplying by factors of 10 or more. Investing in stocks of small startups is a risky business - on average you can make a lot of money, but it takes a lot of capital and endurance to have a large enough portfolio that you actually achieve the average. Otherwise it's luck. My point is: Don't see shares in a company as income. It's an investment and a risky one. Do that with money you can afford to loose and effectively write it off until you've really sold it or the company went public.
lmm 13y ago
The secondary market in private stocks is far from efficient, as can be seen by how much IPO valuations tend to differ from the level the relevant stocks were previously trading at. Also most people's utility functions are not linear in money - but those of rich people/institutions are much closer to linear, and rich people/institutions dominate the market.
rmc 13y ago
Perhaps a more accurate phrasing would be "Most people (incl. employees) overvalue the stock they got", or that employers will try to pass off stock as worth more than they are actually worth. e.g. if you're offered 1,000 shares, it's highly unlikely they are worth €100,000,000.

by lutusp 13y ago

Xylakant 13y ago

I'm not talking about the general market of publicly traded companies where your theory applies. I'm talking about the subset of startup companies that typically offer shares instead of payment to employes. A lot of those are not or only partially investor backed. Even of those that are, most fail, their stock value effectively nil. Of the rest, a large share basically just breaks even which makes their stock pretty much untradeable since practically nobody wants to buy shares in a company that will probably never have a large growth. The tiny tiny rest grows in leaps and bounds and is the next google/facebook/, the stock value multiplying by factors of 10 or more. Investing in stocks of small startups is a risky business - on average you can make a lot of money, but it takes a lot of capital and endurance to have a large enough portfolio that you actually achieve the average. Otherwise it's luck. My point is: Don't see shares in a company as income. It's an investment and a risky one. Do that with money you can afford to loose and effectively write it off until you've really sold it or the company went public.

lmm 13y ago

The secondary market in private stocks is far from efficient, as can be seen by how much IPO valuations tend to differ from the level the relevant stocks were previously trading at. Also most people's utility functions are not linear in money - but those of rich people/institutions are much closer to linear, and rich people/institutions dominate the market.

rmc 13y ago

Perhaps a more accurate phrasing would be "Most people (incl. employees) overvalue the stock they got", or that employers will try to pass off stock as worth more than they are actually worth. e.g. if you're offered 1,000 shares, it's highly unlikely they are worth €100,000,000.