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Comment by IgorPartola | Hacker News Reader

That makes a lot of sense. I think the GME debacle is a good demonstration of that. Shorting stocks is a part of the game. Some people exploited it, others found a counter move. I don’t believe GME is worth what the market currently values it at. But I also don’t see that fundamental value ever matching the market value anytime soon because the market has fully embraced its non-rationality regarding this stock. We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses.

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> But I also don’t see that fundamental value ever matching the market value(...). We aren’t trading shares in a specific company here. We are trading Melvin’a profits and/or losses.

I think you're still doing L1/L2 thinking.

The way I understand L3, there's no such thing as "fundamental value". There's only market value, that's determined by what people think the market value is. The extent to which it's correlated with real-world performance of a company is limited to how likely other people are to take that performance into account. Ordinarily, enough investors look at the state of the company to give rise to a correlation (if only because otherwise there's nothing external to look at!). Meme stocks are kind of extreme here, in that everyone knows that everyone else knows the stock is being traded on its market value. But that feels to me like a difference of a degree, not of a kind.

And at this point I ask myself, how any of that is even useful to the society? Could we decouple the parts that let companies loan money and be accountable to the shareholders, separate them from the part where investors just play their spreadsheet MMOFPS? Or is the former always inherently going to turn into the latter, as people will always game it?

But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks.

As for the usefulness question: providing liquidity is useful. If an investor considers investing in some project, it helps his decision making if they can be reasonably sure that they will be able to sell their shares later on.

And even if it wasn't useful, why would you care what other people do with their money?

As a shareholder how do you access that value without stock market shenanigans coming into play? The only two that come to mind are companies about to go bankrupt, or a careful focus on dividend value (but dividends may not pay out the value of their static assets without having to sell them.)

If you've got a company which is worth a billion dollars in assets but is in too unfashionable an industry to be trading at more than half that in stock (and there isn't a more obvious problem you've missed like unsustainable debt), someone will eventually buy it to liquidate those assets, and earn the holders a nice little profit on the way. And value investing is all about the other side of the beauty contest - looking for the companies investors don't think are handsome which are strong enough to end up generating the sort of profits that will eventually lead investors to conclude they're not that ugly after all.

The irrationality is more on the upside: tech stocks whose fundamentals make little sense you suspect will go up in value in the short term anyway because of FOMO. A lot of people have made fortunes on those kind of bets, and there are definitely people day trading WSB hyped stocks who don't forget to sell.

By forming an interest group with other shareholders, so that you have enough votes to determine what happens with the companies assets (in an extreme case).

You also have some legal rights as a shareholder. I don't know about the US, but for example in my country there is a LEGAL requirement for companies to maximize shareholder value. Few people seem to know when they blame capitalist greed, when really it is a government law. So you can sue the company if you think they mismanage their assets.

Of course there are ways for companies to rip off shareholders. I think there is an old Philip Greenspun article about it, iirc he mentions buying expensive furniture and artwork for the offices.

I suppose it is part of the due dilligence before investing in a company, to check how they spend their money.

I believe that is the case in the US also and it results in extremely poor company behavior. I would rather invest in companies that prioritized doing the right thing to maximize long term profits than companies just try to maximize the next quarter’s returns.

I care a lot what other people do with their money. I care if they use it to harm people. I care if they use it to buy legislation to replace pensions with 401ks. I care if they “earned” it through fraudulent means. Some ways to use money are beneficial or neutral, but some are harmful.

But do you care if they gamble away their money? Surely, with the "fraudulent means" example, you care about the fraudulent means, not the money. Can't comment on the 401k thing, but I suspect a conspiracy theory. If you have proof of people buying legislation, maybe tell CNN?

> I care if they use it to buy legislation to replace pensions with 401ks.

Pensions are terrible (at least based on performance so far). Not only do they provide worse returns, many are incentivized to lock you into a specific company for many years.

An friend of mine retired in 2013 and had pensions from the first 3/4 of his career and a 401k from the last 1/4. The 401k grew so much it paid out more than all of the pensions together when annuitized (even with garbage interest rates).

You have to compare the amount of money your buddy paid into the pension plan vs 401k to even begin to do an alalysis. (With or without the 401k/ employer pension match)

I have a pension and if I maxed out a 401k it would grow "bigger" but that means I'd be saving more than the pension plan payments that come from my salary require me to save.

I do know those numbers, he showed me. The contributions to the pensions were higher and the pension growth was just garbage for two reasons:

- there was no individual selection in pension investment. They are risk averse so you end up with bullshit total market stuff that gets tepid gains compared to US stocks.

- it’s impacted by the performance of the company. Many pensions invested part of the money into their own stock/industry so a downturn would impact both job prospects and the pension performance

Pensions are “I know better than thee” bullshit run by a company with some kind of elected moron deciding what happens with your retirement. No thanks

>But it is obviously bullshit, as the real companies behind some stocks have a real value. Like for example they might own a building that is worth one billion dollars (simple example). If you take away all the stock market shenanigans, you still own part of that building via your stocks.

But as a stock holder even of a public company, your shares can get diluted to smithereens when they issue new shares to raise money.

For a laugh check out the chart of Helios and Matheson, the MoviePass company that had a fly by night stock spotlight experience a couple of years ago. It's so diluted, the historical price looks like the stock was worth bazillions in the past chart numbers.

I'm not an expert on that, but how can companies simply issue new stock? Why wouldn't they simply issue billions of shares and dilute everybody else to nothing? (Except for the loss of trust, meaning they would only be able to do that once)? Can they simply issue new stock in any way and amount they want?

I don't know the legal specifics but they absolutely can, and do, all the time. It makes the stock sink so it's not something you do uncalculated, but struggling or new companies do this all the time. It's a way to raise capital in the public markets. If people believe in your growth, they'll go along and you might not crash too badly after dilution. And yes, some dilute and pay their executive team handsomely year over year.

Companies issue stock all the time. Ideally, if a company issues, say, $1B in stock, its so they can use that money on projects that will return >$1B in value. In that case, everyone's happy because the dilution in shares in more than counteracted by the increase in revenue.

There are limits - I would assume the SEC has the ability to approve or deny new issuance of shares. If you have 1 million outstanding shares, they would probably frown upon a filing to issue 1 billion more shares.

> The way I understand L3, there's no such thing as "fundamental value". There's only market value

I think control theory works better at describing these factors, as L1-L2-L3 suggest some derivative relations that its's not really there.

you have your set point, which is the hard company value. you have n proportional forces, each proportional to the distance from the company current value and that of every put and call on the market. you have a damping effect in the form of HFT, and you have an integrative term, which acts weird because it's applied inversely proportional to the short positions, and it's the lending cost on the short positions.

Except the whole thing with market being anti-inductive is that you have a non-linear term that's a function of the state of the control system itself!

(I didn't want to suggest some derivative relation - just refer to the "perspectives" mentioned in the topmost comment.)

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