Fortunately for investors in public companies, you can mostly sort out the crazy people ahead of time
By inspecting the growth mechanism of the company. Amount of leverage, yield on investments relative to risks, assumptions about future growth, management commentary etc.
Unfortunately for investors in FTX, they had no visibility or regulations/protections against their deposits being stolen
> Fortunately for investors in public companies, you can mostly sort out the crazy people ahead of time
> By inspecting the growth mechanism of the company. Amount of leverage, yield on investments relative to risks, assumptions about future growth, management commentary etc.
Why waste your time like that? Just buy an index fund.
> Unfortunately for investors in FTX, they had no visibility or regulations/protections against their deposits being stolen
Even more important, short sellers couldn't correct the price, I guess?
Index funds are only as good as their constituents.
Why buy index funds that hold many overvalued companies, like Chipotle at 50x PE (2% yield), or Costco at 40x (2.5% yield) when 10y at 4%. To name just a few of many
Also certain sectors and companies will do better than others in this macro environment.
Would rather buy things that are fairly valued. But to each their own
I believe in a weak form of the efficient market hypothesis that says by the time I have heard of any news, Goldman Sachs and the hedge funds will have already traded on them.
Since hedge funds are allowed to short, that includes any estimates I could make about things being overvalued.
All the news are priced in by the time they reach me.
> Also certain sectors and companies will do better than others in this macro environment.
Definitely, but that's already priced in as far as I can tell.
However, you might be more confident in your ability to spot undervalue and overvalued companies than I am.
I do agree with you that less liquid markets, like private companies etc, are less likely to be efficient.
Well you haven’t been investing very long if you believe the banks have any idea what’s going on.
They pretty much all had 5000 price targets on the S&P for 2022
Buy recommendations on stocks with wild overvaluation that later collapsed 90%. Just look what most banks and funds were doing during the dotcom bubble
Price targets and buy/sell recommendations are obviously rubbish. Regard them as PR.
You need to look at what people do, not what they say. And market prices are an aggregate of the former.
Btw, the efficient market hypothesis says that the current market price is basically the best 'price target' / forecast available. (Modulo an accumulation of interest and cost of carry etc.)
> Just look what most banks and funds were doing during the dotcom bubble
That's an interesting example to bring up!
If you had bought the Nasdaq composite index during that time, you would have done pretty already today.
We didn't so much have a dotcom bubble, as an irrational dotcom burst where tech stocks were perhaps irrationally underpriced for a long time.
Do keep in mind that I am not saying that market prices are a perfect predictor. Just that they are the best predictor we have.
In an efficient market, you would expect prices to look like a random walk. So prices going up or down isn't any evidence against EMH. (Someone consistently outpredicting the market would be evidence against EMH.)
I keep seeing these headlines, and I keep really trying to feel sorry for these people that are potentially loosing their arses. However, I just can't get there.
NFTs are the ones I'm really LOLing about vs the currency plays, but since the currencies are failing too, it just kind reveals the house of straw the whole thing truly is.
Empathy for people worse off than you, even for people who you think make bad decisions, is not hard. Think of someone you care for unconditionally, maybe your child, and imagine that person suffering through this because of poor decision. Would you castigate him or try to soothe him?
Nope, I think you have sympathy and empathy confused.
I can sympathize with them because losing your arse sucks. Been there, done that.
I can't empathize with them as I've just never been in that situation, nor would I ever put myself in that situation. I've been on my arse before, but because of other things mostly out of my control. Investing in a scam after being advised not to is not the same thing.
If it was a young child where parental guidance is effective, then they probably would not be old enough to be investing in a scam. If they are old enough to be investing in a scam and discussed it with me as their parent, I would have 100% advised against the investment. If they said "shut it boomer, you just don't understand tech", then I'd naturally laugh and let them enjoy the reaping of what they sowed. If there are grandkids involved, then they can come stay with me while their deadbeat parent deals with their shit. At some point, the kid has to become an adult.
By inspecting the growth mechanism of the company. Amount of leverage, yield on investments relative to risks, assumptions about future growth, management commentary etc.
Unfortunately for investors in FTX, they had no visibility or regulations/protections against their deposits being stolen