You mean 500 p/e for an established company isn’t reasonable just because they scribbled AI on a piece of paper?
Comment on The Stock Market is Just Financial Fantasy Sports
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
Former econometrician here:
Yes. Correct.
Ever since stock buybacks became the bog standard default, and P/E ratios are between ‘significantly elevated’ and ‘completely fucking delusional’…
Yep. None this shit makes any real sense.
Which is actually a huge problem.
Because… the economic ‘point’ of a stock market, in capitalism, is more or less to act as a kind of giant, collective brain, that figures out how to efficiently and rationally allocate capital and investments.
The ‘invisible hand’, and all that.
So when that brain spends a decade or two more or less in a euphoric psychotic break… well… it doesn’t exactly make sound financial choices.
Which translates into about two decades of nonsensical investment of a society’s resources.
Less ‘theoretically’: Its a giant gambling machine, and if you’re not rigging the game yourself, 99.9999% chance you’re the mark, you’re gonna lose.
And you won’t see it coming, not untill its too late for you to get out intact.
Economists have for a long time referred to state run lotteries as effectively an ‘idiot tax’, because anyone who can do fairly basic statistics also knows they’re very likely to lose money, thus, only idiots gamble.
The stock market as it is now more or less represents a more complex version of the same kind of thing… you’ve got the day traders, and they almost always get their clocks cleaned, they just develop a neurotic-obsessive personality based on ‘no, I’m the one guy that can outsmart the market’.
No, you can’t.
uncouple9831@lemmy.zip 3 weeks ago
yesman@lemmy.world 3 weeks ago
Ever since stock buybacks became the bog standard default, and P/E ratios are between ‘significantly elevated’ and ‘completely fucking delusional’…
At what point do we start to consider that capitalist economies aren’t broken, but that they never worked in the first place?
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
Ideally around 150 years ago, but far, far too late is better than never.
MarriedCavelady50@lemmy.ml 3 weeks ago
Don’t index funds work better than individual stocks?
tempest@lemmy.ca 3 weeks ago
They do, however a lot of people have known that for a while.
The large index funds have a lot of influence when it comes to voting.
As more and more people just invest in ETFs I do wonder if we are headed for some delightful market crash as a result.
I’m not even close to an expert though… Which is why I use index funds in the first place. Just wondering how I’m going to get screwed before it eventually happens.
pinball_wizard@lemmy.zip 3 weeks ago
Index funds are much better than individual stocks. But Index fund price to earnings ratios still reflect their individual component stocks.
When the P/E ratio is 40, a rough way to read that is “it will take 40 years of stability for this purchase to pay off”.
Many people don’t have 40 working years left to wait for a stock purchase today to pay off.
And the supply of “years of stability” isn’t looking amazing, right now, either.
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
More or less this, yes.
Index funds are generally less risky than trying to pick individual stocks, balance your own portfolio, or god help you, be an active day trader.
But, as pinball wizard says… if the blend of stocks the index etf is based on… if all the components are also varying degrees of delusional…
Then everything could break, rather rapidly, if enough small delusions, or one big shared delusion… are revealed as such.
I’m not actually a financial advisor, but I am giving some advice:
Go make a chart of the DJIA, divided by the USD price of Gold.
… Gold is pretty signifcantly outperforming the stock market, in this 2nd Trump term.
As the Chinese say, we are currently living in ‘interesting’ times.
SaveTheTuaHawk@lemmy.ca 3 weeks ago
Index funds work better than 80% of stock analysts.
Strider@lemmy.world 3 weeks ago
The main issue with all of this is that we still Indeed value companies based on this. It’s totally insane and leads to all the wrong development and ultimately to our downfall.
IronBird@lemmy.world 3 weeks ago
it’s incredibly easy to beat the market when it a bull market (where do you think all these ratfucks put their illgotten gains…), i’m up 5000%+ ytd, not shorting anything just buying low selling high
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
Yes, and then the trick is timing your exit or restructuring into countercyclicals … at the right time.
And timing is the part almost everyone fucks up.
Also, if you’re ‘buying low and selling high’, and you’re up 5000+ ytd?
Then you’re basically daytrading, which basically means this is a full on part time job for you, at least…
… and while did you say you’re not shortselling, you did not say you’re not using any leverage.
So uh yeah, best of luck, hope you can keep up the perfectly timed dance, and never miss a beat, nor miss an upcoming time signature change.
IronBird@lemmy.world 3 weeks ago
not day trading, that’s the real beautiful part of actually knowing how all this works. just avoid the obviously overpriced shit, trade with the barest understanding of the actual value of the underlying and don’t short anything and it’s practically impossible to lose $ in a bull market.
i don’t day trade, more of swing/event trader i guess. point is in a bull market, especially a bubble…there’s shitloads of $ flying around, mostly via passive/algo traders. hunting that liquidity down for yourself really isnt all that hard to do once you understand they key differences between US markets and rest of world (especially EU, who like theirs predictable)
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
… right.
At no point did you deny that you’re using leverage.
Which means that if your understanding of ‘how it all works’ is… wrong… in any significant way…
Well then your personal situation unwinds in a micro version of how the rest of the economy currently is.
Your strategy relies on never making a significant mistake.
Statistically, you will.
Oh right, also this:
A few million is nothing.
Maybe enough to confidently own a pretty nice home.
Assuming the starving mob doesn’t visit you.
In terms of fixing society?
That’s roughly on the scale of helping hundreds or thousands in your local community, on an ongoing basis.
Nothing, in the grand scheme of things.
… A couple million?
Jeff Bezos makes ~3 million dollars in a single hour.
An hour.
Try and square that, really try and think about that.
That house you wanna get, that non profit you wanna set up?
That you took huge risks for, for multiple years, some how lucky enough to never fuck up?
That’s an hour of Jeff sleeping.
He could see your house, or envision that non profit in a dream, and then on a whim, just buy 8 of them when he wakes up.
The solution to this, to trying to fix society is not trying to beat them at their own game.
The solution is breaking the rules of the game.
After all… that’s how they got to be where they are.
SaveTheTuaHawk@lemmy.ca 3 weeks ago
Anyone who wastes 4 years on a commerce degree: explain why TSLA is $480. They will curl up in a fetal position crying.
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
A… commerce degree?
Forgive my American dialect, but is that… Canadian… for a Business degree?
Uh anyway, myself having degrees in Econ and Poli Sci, here’s my attempt at explaining it, at this late date:
Sunk Cost Fallacy.
IE, its now essentially its own self-perpetuating delusion, its own bubble all in and of itself.
How did it get to this point?
Uh, Elon is a con artist.
See the same part of the Poli Sci textbooks that attempt to answer ‘Why do people who are directly, negatively impacted by Republican policies keep voting for them?’
Though at that point we may need to just delve more into Psychology, groupthink, socially performed identities, cults, etc.
MangoCats@feddit.it 3 weeks ago
I used to think that the market “drove engagement” - keeping people with money interested in the dealings of the companies they invested their money in.
Lately, I feel like it’s just a giant Casino.
sp3ctr4l@lemmy.dbzer0.com 3 weeks ago
Way, way back in the day, when the primary model of stocks and the stock market was…
I buy 1 share of Company X stock, for Y dollars, and once a year, it pays me Z dollars as a dividend…
Yes, with that paradigm, it made a lot more sense to say that this ‘drove engagement’… because a stock operated more like a miniature bond in/for a company.
But, now the whole model is ‘stock price must go up forever’, nest eggs are capital gains realized upon retirement, that you take loans out against to avoid paying cap gains tax…
…not dividends gradually paid into a growing retirement savings account, managed by a regional or local bank.
Which entirely blows up that way of thinking.
IronBird@lemmy.world 3 weeks ago
that is exactly how the US markets are setup, you can compare the US markets to EU or practically any other besides Japan and they’re drastically less exciting.
the US’s is designed around “maximizing lquidity” via a mix of over and under regulation all meant to increase volatility.
SaveTheTuaHawk@lemmy.ca 3 weeks ago
No, casinos state the odds on every game and tell you if you play long enough, you will lose everything. The stock market actually calls itself a free market, which is hilarious.
MangoCats@feddit.it 3 weeks ago
Well, of course, it’s different than a Casino. It’s bigger. It’s a longer running game. But it still pushes those “get rich quick” addiction buttons. You’re right, there are addiction awareness resources built up around traditional gambling channels, disclosure that “the house always wins.” In a sense, the stock markets are a long enough, slow enough running game that many players do actually die before the longer running Ponzi schemes collapse - so maybe the lack of addiction support groups is a little big justified there.
There’s also an unclear distinction drawn between “day traders” and “long term investors” which is so fuzzy as to be meaningless anywhere near the boundary, if there even is a boundary. How can you tell if your mutual fund is day trading?