[eru]

> 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?

[adam_arthur]

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

[eru]

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.

[adam_arthur]

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

[eru]

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.)

[adam_arthur]

Dotcom was an obvious bubble.

It doesn’t matter if the index level reached new highs 15 years after crashing. Valuing 15 years of company growth into today’s price almost always means that it’s a poor buy. You could obviously buy something more fairly valued today and enter later at a more optimal price.

Is cloudflare a good investment now at 12-15x sales? Almost certainly not. It becoming a $1T company 20 years from now doesn’t invalidate that

There are plenty of people who beat the market consistently, including myself. Warren Buffet, Michael Burry, Druckenmiller, Peter Lynch, Renaissance Capital.

Are they statistical outliers, or do they have an edge?

To me, it appears quite easy these days if you have any sense of fundamentals, which 90% of market participants seem to no longer have.

You literally have many companies that are direct peers/competitors trading at far different multiples. That alone is enough to invalidate the EMH.

Look at valuation differences between single tenant net lease retail stocks, for example. The biggest edge will be in smaller cap and less followed names. And there are thousands of them. Pretty easy to find small cap peers in RE that have better growth, same risk profile, and much lower valuation multiples, for example

[eru]

Warren Buffet hasn't beaten the S&P 500 in a while.

> Look at valuation differences between single tenant net lease retail stocks, for example. The biggest edge will be in smaller cap and less followed names. And there are thousands of them. Pretty easy to find small cap peers in RE that have better growth, same risk profile, and much lower valuation multiples, for example

Less liquid markets are less efficient. People who go and exploit these mispricings help make the prices better, and the market pays them for it. (But that only works for as long as there are mispricings.)

> Is cloudflare a good investment now at 12-15x sales?

Please short cloudfare and make some easy money.