[janalsncm]

Does the EMH state that prices will reflect on the price of a stock instantly? If not, I don’t think there’s a paradox. EMH would just mean it will eventually converge? I guess that makes it pretty toothless in practice then.

I feel like the stock market is pretty divorced from fundamentals at this point i.e. speculation makes it more like a Keynesian beauty contest (picking stocks you think other people will think are valuable).

https://en.m.wikipedia.org/wiki/Keynesian_beauty_contest

[throw0101a]

> I feel like the stock market is pretty divorced from fundamentals at this point i.e. speculation makes it more like a Keynesian beauty contest (picking stocks you think other people will think are valuable).

Momentum investing is a thing:

* https://www.investopedia.com/terms/m/momentum.asp

* https://en.wikipedia.org/wiki/Momentum_investing

A number of people make / made money when The Market became "divorced from fundamentals": see The Big Short.

* https://en.wikipedia.org/wiki/The_Big_Short_(film)

Just remember: "The market remain irrational longer than you can remain solvent." — Keynes, https://www.goodreads.com/quotes/603621

[janalsncm]

A big part of that movie was Christian Bale’s character betting on a crash, and almost bankrupting his company because the market stayed irrational long enough. Other people probably made the same bet but ran out of time. You have to be right and lucky.

[vintermann]

Some institutional designs are more prone to Keynesian beauty contests than others.

It's instructive to compare "Crowdfunding" which took off with Kickstarter ~15 years ago, with "Equity Crowdfunding", which gets tried again and again, and has not a single success story to its name.

Kickstarter was made to fund artistic ventures, and for the first years, they were strict about only allowing that on their site. The idea was to reduce risk for e.g. people trying to bring their favorite band to the area for a concert.

On old Kickstarter, you only pledged to a project if YOU want the product/outcome for its own sake.

However, in "equity crowdfunding", where backers are tempted with a share in the profits of a venture, you should, if you are smart, try to ignore what YOU want. Your own wants are a source of error here: as a fan of the band, you're likely to overestimate its appeal. You should play the Keynesian beauty contest and try to guess what others want.

Kickstarter understood the difference very well. In the early years, they banned such things as "reseller's tiers". Some people would support e.g. a boardgame with pledging for five copies of the game, betting on its success and hoping to resell four of them. That brings the KBC factor in again, and Kickstarter thought that it would eventually lead to the site being flooded with the things everyone thought everyone else wanted, rather than the things they actually wanted.

There's a whole scam industry dedicated to exploiting the gap between what you want and what for its own sake and what you want because you think others want it: MLMs. MLM victims get tricked into a loop where they on one hand convince themselves that the product is great because they hope to sell it, and on the other convince themselves that the product will sell because it's great.

[marcus_holmes]

This is the truth. What drives the price up or down is speculation about whether the price will go up or down. There is only a very loose connection with actual company performance.