In the end, people don’t care if the “stock is really worth” the price, they only care if themselves or someone else are willing to pay the price, nothing else really matters.
- Ben Graham
This mostly holds true depending on you define 'long run.'
Does that mean the weighing part is becoming less important, and the voting part more so?
The only varying metric it has is the denomination you measure it in. Whether that is Venezuelan Bolivars or USD.
Everything else is set in stone.
Underneath all the talk of smart contracts running on ETH, behind DApps, the system at large skirts money laundering laws, and that's not a property of the system that conveniently just happened. A big reason for choosing crypto over something boring and normal, ie banks and the whole regulated financial industry, is because it skirts money laundering and other financial regulation, and because it's outside of the regulated financial industry, a lot of users don't believe they have to pay taxes on any gains made. For those that don't believe in the concept of taxes, that's very attractive.
When a business has a P/E multiple of >100+, a significant portion of the investment is speculative rather than a rational projection assets and future earnings.
It's really hard to make a rational value fundamentals argument for why anyone is willing to invest in TSLA, with its current price putting its P/E of 1700.
Also, the long term average P/E ratio is 15. Stocks haven't really had P/Es less than 5 since the Great Depression.
Found this interesting list of average S&P500 P/E over the years https://www.multpl.com/s-p-500-pe-ratio/table/by-year
Average P/E is 15.79, higher than I thought it was.
So you are saying more than 10% yield should be normal? (Assuming normal payout ratio is 50% - highly variable).
You might get a cut of the profits in the form of dividends... unless you don't. Plenty of stocks never pay dividends. A lot of companies pay more to charity than to dividends to investors.
Or, you get a vote on company policy at the stockholder's meeting... But if the founders own more than half the stock, that doesn't actually matter. And that's assuming the founders haven't just sold stock with no voting privileges.
If the company files for Chapter 7 bankruptcy, stock owners are entitled to company assets... And almost never see any, because they're last in line behind every other creditor.
So it's unclear what, precisely, the practical weight of "partial ownership in a real business" has in general. In specific, sure; stock could be access to dividends or a meaningful voice in company policy. For a lot of stock, the only real value is "How much will someone else pay me for this piece of the action?"
To mangle something that Lincoln probably never said:
All the stock prices can be somewhat wrong for some time, and some stock prices can be very wrong all the time, but all stock prices can't be very wrong all the time.
It's a beautiful idea in principle. Ultimately the reality that emerges will reflect the underlying values of the society.
Really makes you wonder about our values, given that presently emerging realities include an increasingly inhospitable homeworld.
Those things are themselves the product of the market price, it's not a one way street. This is what Soros' reflexivity is about.
Originally, when institutions were the major players, stock prices followed fundamentals because most ppl cared about the revenue, earnings and cash flow. But what happens when the demographics change?
I think you have a rosier view of what drives most of our markets than what happens in reality. Look at the dot com bubbles. Look at how HFT firms make money by exploiting the tiniest of pricing discrepancies and leveraging them heavily. Or perhaps "analyst reports" that can make or break a stock because one person believes something and we give them a megaphone. We switched focuse from present earnings to forward looking revenue. We have stock buybacks. We applied large multiples to financially unsustainable businesses because "maybe one day they can monetize these millions of users with Ads". etc. etc.
The GFC was a game of trying to sell to the greater fool and involved intentional manipulation at the highest levels. It seems the system has been has always had these holes and it was "ok" until regular folks began to identify and act on these opportunities.
We likely wouldn't be having this conversation if another large hedge fund was making the play retail investors are today. We'd read articles talking about the public battle of the billions.
Reminds me of anytime a govt entity creates & exploits a backdoor and is surprised when other actors use the same door for their own activities.