[edmundsauto]

Do you consider a probability distribution function as objectively true? If it's not obviously true beforehand, I'm not sure if it's only clear in hindsight, which has all kinds of psychological issues in interpretation.

IOW, is there any practical difference between "there is no objectively correct price" and "we'll never know what it is"? The price at any given time reflects the current consensus of the objective price, distorted through the current average psychological lens of the market?

If something is unknowable before it occurs, we will never know what the objectively true measure is until it's occurred. At which point it changes, since the market is dynamic. How could we ever know which point is the correct price?

[gizmo686]

There is a difference between "truth does not exist" and "we cannot know the truth".

In theory, we can take a now worthless stock and look back in time to determine the actual present value at a given point in the past.

In theory, we can imagine an outside observer running an arbitrarily large copies of our universe from a given point in time to determine the probability curve at said point in time (under whatever model of randomness you want to use). More plausibly, we can take a set of predicted probability curves and look back to see how accurate they were (did events predicted with uncorralated 50% probability happen half the time?).

Economics is hard, because it is very difficult to determine these facts, even in retrospect, but they still exist.

[edmundsauto]

> There is a difference between "truth does not exist" and "we cannot know the truth".

If we can't know the truth, how do we know it exists (in this situation)? I'm not convinced there's an objective true value of a stock -- it seems like stock prices are the general consensus of a huge number of subjective inputs. And that will always be the case.

(Definitely appreciate the time and thought you've put into your responses, btw! Thank you.)

[kd5bjo]

At any given point in time, it's possible to calculate how much value a stock has already given to its bearer via dividends, and adjust those values for the changing purchasing power over of currency over time.

Once a company dissolves, we have enough information to do this calculation over the entire lifetime of the stock issue. At that point, we can determine what real value that stock had at any point in the past for the bearer.

This explains how value investors interpret stock value, but most traders are speculators that expect to make their profit by selling the shares on to someone else. They will only buy a share of stock if they believe that a future investor will buy it off of them at a higher price. This future investor will either be a value investor that expects to get the dividend returns or another speculator that is making the same calculation. Thus, even if a share of stock will pass through many hands before it lands in the portfolio of a value investor, that value investor is the only real price anchor, and the entire chain of speculators are ultimately trying to sell to him/her.