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Comment by _cs2017_ | Hacker News Reader

_cs2017_

Anyone who can successfully predict downfall of large publicly traded companies can work for a hedge fund and make tens of millions of dollars a year.

Anyone who cannot predict such events can write articles for a magazine claiming otherwise. At least it helps sell their speaking and consulting engagements.

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It's also pretty naive reasoning. Author thinks a significant enough number of people are going to care? Facebook has survived- no, thrived despite multiple public scandals, some of which were far more substantive than complaining about Apple's privacy policy.

A few months ago, I would have completely agreed with you. But the number of facebook addicts that I know that have quit facebook recently, are starting to make me rethink my position on this. I know it's just anecdotal, but maybe it's also not.

https://www.statista.com/statistics/247614/number-of-monthly...

Maybe we are indeed in the beginning of a trend reversal, but we don't have enough data to support that as far as I know.

There are limits to what you can do with superior but imperfect knowledge though. E.g. everyone knows Tesla stock is overvalued - even Elon tweets about it. And yet it's not really feasible to profit off this knowledge.

Why is it not feasible to short Tesla?

because you don't have a good idea as to when they will stop being overvalued?

The market can stay irrational longer than you can stay solvent.

Isn't that a market failure then? If the founder and CEO of the company says the company is over-valued, there should be someone in a position to capitalize on that information.

Not really a failure. It's important to realize that people are not necessarily always paying for the 'actual value of a company' (subjective itself) but for what other agents will be willing to pay for the stock. If that value is higher than the current price, they'll buy.

Sure, but then so is pretty much every aspect of the stock market, IMHO. It's a tool with all sorts of terrible flaws when it comes to capital allocation. A single company being overvalued without a safe way to bet against mass delusion of the public isn't that large of a flaw compared to the systematic over valuations and under valuations, IMHO.

This isn't to say that it's not without its uses, but we should be aware that it has huge problems even if we don't know of a way to fix them yet.

> Isn't that a market failure then?

By definition, every non-ideal behavior of real markets is a “market failure”.

Real markets, as opposed to Econ 101 idealized ones, are full of market failures, both due to structures that Econ 101-level analysis ignores about basic market structures and human irrationality.

Also, long and short positions aren't symmetric, because there is no non-margin way to enter a short position. This makes the ability of the market to stay irrational more likely to go bite you in a short position than a long one, ceteris paribus.

"markets can remain irrational longer than you can remain solvent"

You’d need to be a “long-term short” - which is difficult to pull-off.

Same reason it’s not been profitable to short them for the last 3 years.

Because it assumes a rational market. And the market can stay irrational longer than you can stay solvent.

who is this a quote of? seems like common knowledge here.

I believe John Maynard Keynes

Often attributed to Keynes, though it looks like it was likely Gary Shilling:

https://quoteinvestigator.com/2011/08/09/remain-solvent/

Thanks for the good refs!

I know a lot of people meme about the Reddit Wall Street Bets community, but if you want to see a stream of people losing money trying to guess TSLA’s downfall, that’s a good place to start.

There are also lots of examples there of people gambling on TSLA shooting to the moon and making a killing this year.

If you only predict that the stock is overvalued, it may indeed be difficult to exploit that information.

However, in this case, the author predicted the downfall of a huge company. If its business starts failing by any reasonable metric, its stock will fall very fast and very far.

SOTP suggests FB investors at around $180-$200 could make out nicely even if they split Instagram and Whatsapp. I don’t think there’s a lot of synergy among those three core businesses. In fact, Instagram would be worth a lot more independently (just as Youtube would be worth more operating alone). This is to say not a lot of downside as people may expect from Political scrutiny forthcoming. My two cents.

Not a lot of synergy from the end user’s perspective, but the value of those platforms is the advertising network, which is a massive synergy for Facebook operating all three platforms and owning all three audiences. I don’t know how exactly a split would work but I see more downside than upside to having to recreate the ad network on each platform.

Completely agree. That title is so stupid that I wish I could "killfile" that author from all my web news feeds.

You'd need a few prescient articles under your belt before the hedge fund would hire you, though.

this is wisdom

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