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So you think it's purely a coincidence that AAPL is up 3-4x in the past 5 years while Radio Shack stock has lost 99% of it's value? It has nothing to do with th

by harryh 12y ago

So you think it's purely a coincidence that AAPL is up 3-4x in the past 5 years while Radio Shack stock has lost 99% of it's value? It has nothing to do with the fact that Apple is making huge profits while Radio Shack lost money hand over fist?

JoeAltmaier 12y ago
Within the bounds of 'book value', yes. The fact that you are convinced there is some necessary relationship (and that I am wrong) is the 'cultural' part of it. You think that somewhere there's a link between those facts, when in fact there is none. None but other people believing the same thing.
- harryh 12y ago
  There is a link between those facts. The PE of a stock is a number signifying the rate of return and that rate of return will be compared by the market to other investment vehicles. Sure, in the short term things can get crazy. Will TESLA achieve wild success and own 50% of the auto market, or will they go out of business when Toyota clones their cars? Reasonable people can disagree on these predictions and hence the stock will be relatively volatile. But in the long run we will have the answer to this question and the value of Tesla will directly relate to it's ability to generate a return on capital just like it does for every other mature business.
  - JoeAltmaier 12y ago
    Again, you like to believe that the P/E is somehow a necessary relationship between the company and the stock. Its not. Its just a number you calculated. Take baseball cards, which are almost exactly the same thing as stock certificates except we believe different things about them. You have all sorts of stats on the back. But nobody believes they control the value of the card. That non-sequitur about TESLA predictions and the price of the stock are more of the same witchcraft. Sure I believe the stock will go up if the company is successful, but only because other people believe it too. Not because there's any cause and effect relationship other than belief.
    - harryh 12y ago
      P/E is not just a number. It's a measure of return on capital. It's the same thing as an interest rate on a bond or appreciation on the value of a house. Sure, the return might not go directly into your bank account the way bank interest does but it does exist. It's either being reinvested into the business, or returned to the shareholders in the form of dividends or stock buybacks. It is a huge error in thinking to believe that a piece of stock is a baseball card. It is not. It is, in a very real sense, actual ownership of an actual business and all that represents.
      - JoeAltmaier 12y ago
        Its in a very abstract sense, ownership. Tou don't get to make any decisions whatsoever regarding said business. You don't get to speak for the business. You don't get to work there. You don't own anything, in fact, except the stock share. No, its a polite fiction that a 'share' is related to the business. Its related to the right to bet on the business' performance, and a little bit more. If the business fails, you have certain rights. If its sold, your share is handled specially. That the return doesn't go into your bank account is especially damning. The company money is entirely kept separate from your money, because they are not legally related. Dividends are a red herring, used by few companies and factored in/out of the stock price near the dividend date. Stock buybacks are another anomaly. The company can decide at any time that you don't own your share, they want it back! There have to be special rules put into place to avoid 'abuse' during buybacks, mergers etc. Because otherwise the non-existant connection between the share and the company would be exploited to the fullest, by leaving the shareholders out of the money entirely. SO rules get made to force the company to pretend the share is meaningful.
        harryh 12y ago
        1) You do have a say in the business (for most companies). Stockholders elect the board of directors and the board installs the managers of the company. 2) The company's money and you are, in fact, legally related when you buy a share of their stock. That is a legal contract. 3) Of course the timing of dividends are factored into the stock price around the time they are being paid. If I know that I own something at 12:00:00PM I'll get a $1 dividend, but if I don't own it until 12:00:01 I get nothing it makes perfect sense for the price to change by $1 at exactly that time. This actually support the argument that stock prices are related the the profitability of a company (and hence their ability to pay dividends). 4) A company cannot, in fact, decide at any time that you don't own your share anymore. It can decide to offer you money for that share and you can choose to sell it or not. 5) Most of the rules around buybacks, mergers, etc have to do with information disclosure and exist to help prevent company employees from stealing from shareholders. That's not pretending that there is a relationship it's protecting the legal rights of the owners of the company. ---------- I will tell a parable. Scientists have an understanding of gravity. Masses are attracted to each other and behave in certain ways based on certain mathematical rules. One could come along and say "That's hooey, it's all just witchcraft! It's only because we all think that we're attracted to the Earth that we can't fly." I wouldn't really know how to respond to that other than to say that there are logical reasons to accept the laws of gravity and further there are mountains of evidence to support the hypothesis. It's the same way with the stock market. A share is, legally speaking, fractional ownership of a company. It has certain legal and financial rights. Hence we would expect the value of shares to move in relation to the success or failure of companies. This is, in fact, what we have witnessed in reality over and over and over again. You can keep on believing it's witchcraft all you want and I don't know how to prove you wrong. But it just means you are ignoring both a logical line of reasoning and all available evidence.

by harryh 12y ago

JoeAltmaier 12y ago

Within the bounds of 'book value', yes. The fact that you are convinced there is some necessary relationship (and that I am wrong) is the 'cultural' part of it. You think that somewhere there's a link between those facts, when in fact there is none. None but other people believing the same thing.

harryh 12y ago
There is a link between those facts. The PE of a stock is a number signifying the rate of return and that rate of return will be compared by the market to other investment vehicles. Sure, in the short term things can get crazy. Will TESLA achieve wild success and own 50% of the auto market, or will they go out of business when Toyota clones their cars? Reasonable people can disagree on these predictions and hence the stock will be relatively volatile. But in the long run we will have the answer to this question and the value of Tesla will directly relate to it's ability to generate a return on capital just like it does for every other mature business.
- JoeAltmaier 12y ago
  Again, you like to believe that the P/E is somehow a necessary relationship between the company and the stock. Its not. Its just a number you calculated. Take baseball cards, which are almost exactly the same thing as stock certificates except we believe different things about them. You have all sorts of stats on the back. But nobody believes they control the value of the card. That non-sequitur about TESLA predictions and the price of the stock are more of the same witchcraft. Sure I believe the stock will go up if the company is successful, but only because other people believe it too. Not because there's any cause and effect relationship other than belief.
  - harryh 12y ago
    P/E is not just a number. It's a measure of return on capital. It's the same thing as an interest rate on a bond or appreciation on the value of a house. Sure, the return might not go directly into your bank account the way bank interest does but it does exist. It's either being reinvested into the business, or returned to the shareholders in the form of dividends or stock buybacks. It is a huge error in thinking to believe that a piece of stock is a baseball card. It is not. It is, in a very real sense, actual ownership of an actual business and all that represents.
    - JoeAltmaier 12y ago
      Its in a very abstract sense, ownership. Tou don't get to make any decisions whatsoever regarding said business. You don't get to speak for the business. You don't get to work there. You don't own anything, in fact, except the stock share. No, its a polite fiction that a 'share' is related to the business. Its related to the right to bet on the business' performance, and a little bit more. If the business fails, you have certain rights. If its sold, your share is handled specially. That the return doesn't go into your bank account is especially damning. The company money is entirely kept separate from your money, because they are not legally related. Dividends are a red herring, used by few companies and factored in/out of the stock price near the dividend date. Stock buybacks are another anomaly. The company can decide at any time that you don't own your share, they want it back! There have to be special rules put into place to avoid 'abuse' during buybacks, mergers etc. Because otherwise the non-existant connection between the share and the company would be exploited to the fullest, by leaving the shareholders out of the money entirely. SO rules get made to force the company to pretend the share is meaningful.
      - harryh 12y ago
        1) You do have a say in the business (for most companies). Stockholders elect the board of directors and the board installs the managers of the company. 2) The company's money and you are, in fact, legally related when you buy a share of their stock. That is a legal contract. 3) Of course the timing of dividends are factored into the stock price around the time they are being paid. If I know that I own something at 12:00:00PM I'll get a $1 dividend, but if I don't own it until 12:00:01 I get nothing it makes perfect sense for the price to change by $1 at exactly that time. This actually support the argument that stock prices are related the the profitability of a company (and hence their ability to pay dividends). 4) A company cannot, in fact, decide at any time that you don't own your share anymore. It can decide to offer you money for that share and you can choose to sell it or not. 5) Most of the rules around buybacks, mergers, etc have to do with information disclosure and exist to help prevent company employees from stealing from shareholders. That's not pretending that there is a relationship it's protecting the legal rights of the owners of the company. ---------- I will tell a parable. Scientists have an understanding of gravity. Masses are attracted to each other and behave in certain ways based on certain mathematical rules. One could come along and say "That's hooey, it's all just witchcraft! It's only because we all think that we're attracted to the Earth that we can't fly." I wouldn't really know how to respond to that other than to say that there are logical reasons to accept the laws of gravity and further there are mountains of evidence to support the hypothesis. It's the same way with the stock market. A share is, legally speaking, fractional ownership of a company. It has certain legal and financial rights. Hence we would expect the value of shares to move in relation to the success or failure of companies. This is, in fact, what we have witnessed in reality over and over and over again. You can keep on believing it's witchcraft all you want and I don't know how to prove you wrong. But it just means you are ignoring both a logical line of reasoning and all available evidence.