And yet NKLA still has a $5B market cap despite the entire company being 100% fraud. Amazing.
Boring answer, but in the long-term, great businesses go up, whereas crappy businesses go bankrupt.
edit: I see I rustled some jimmies. Feel free to have a look yourself at "modern capitalism".
https://money.cnn.com/news/specials/storysupplement/bankbail...
Especially if chosen inflation measures conveniently exclude capital areas money would accumulate (stocks & property).
I've looked at "Security Analysis" and it's very much a historical piece - railroads and (practically) buggy whips. Things change relatively faster these days. Yesterday, Kodak was the bluest of chips; today, pretty much a joke. Heck, look at Buffett in the last decade - I'll bet he fully Grahamitized IBM, which didn't make it any less hollow. That sort of analysis, or even certainty (a false premise by definition) just isn't worth the effort for the average ownership span.
In times of poverty, fundamentals drive stock prices.
We've been in a time of plenty for a historically abnormally long period.
Short-term market cycles are always driven by credit, which is in turn driven by monetary policy.
Kodak's signs of decay were visible at least as long ago as the late 70s vis a vis the Polaroid patent infringement case (and the cheesiness of Kodak's own knockoffs).
It's still true. We just haven't had, in close to a generation now, the sort of bear market that permits the enforcers of fundamentals to re-emerge: liquidation and bankruptcy against overvaluation; M&A against undervaluation.
The result is a coupling between between the fate of the nation and the fate of its major employers, with loose monetary policy, regulatory capture, and explicit fiscal bailouts to protect it. Then instead of the deadwood being cleaned out, the whole country becomes deadwood, and you get lost generations and social unrest as the only way to throw out ways of doing business that aren't working is to throw out the people in power.
There's no rule that says you need to hold stocks for the same average period that the rest of the market does. Analyzing securities and purchasing those that are undervalued is still an extremely profitable activity at many hedge funds and prop trading desks. The fact that the average investor is more FOMO-driven these days only makes sound analysis more valuable, just like playing poker with a drunk newbie will have higher variability but better expected value.
> higher variability but better expected value.
If you put all your money into shorting GME then yes, you will have a bad time when WSB gets excited again. If you have a widely spread portfolio of shorts in overhyped companies with weak fundamentals and longs in underhyped companies with strong fundamentals, having a few trades go against you is not the end of the world.
It’s more likely that the crappy companies will live for the long term - if you measure “crappy” by anything resembling consumer/client benefit.
It's a relevant read if you work in securities analysis. If you're an investor however, the takeaways of the book are more philosophical than actionable. Too much has changed in the market since Graham's time.
The idea of an Uber-type company using VC billions to cover its losses would have been completely alien to him. As would companies doing an end run around the IPO process with SPACs.
It merely means that given a certain set of axioms, heuristics and circumstances, it arrives at the same or nearly similar results.
The law is rational in this sense but not always logical or moral.
The one things with markets today is, thanks to QE, they are NO LONGER value/price seeking system at all. The proof of this is the cross correlation across all asset and instrument classes hovering around 80%-90%. That's NOT what should be happening.
Does it? If you look past the biggest scams and bubbles, I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult. Speculators after all are the ones who correct the prices of assets which are being wrongly valued.
The Japanese Nikkei is still down 40% from 1989. That was 31 years ago. The Shanghai Composite index is down 45% from 2007. That was 13 years ago. Hong Kong’s Hang Seng Index is down 10% from the peak in 2007. The German DAX is a “total return” index that includes dividends. So it cannot be compared to the other indices here, or to the S&P 500. The German index that is not a total return index and therefore can be compared to the S&P 500 is the DAXK. Despite its red-hot surge in recent months, it’s still down 8% from the peak in the year 2000. That was twenty years ago. The London stock exchange index FTSE is down 13% from 1999. 21 years ago. The Italian stock index, the FTSE MIB, is down about 60% from the year 2000. 20 years ago. The French stock index, the CAC40, is down 24% from its peak in the year 2000. 20 years ago. The Spanish stock index IBEX 35 is down 58% from its peak in 2007, which was the peak of the Spanish housing bubble that collapsed with devastating results 12 years ago.
"I think most research shows that a moderate amount of speculation actually decreases volatility and makes market manipulation more difficult."
I'd be interested to read such research.
To me, this current craze (Stocks, housing, crypto, etc) just doesn't pass the sniff test. It just seems off. Has for a long time. Something has to give. It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers. Again, who knows!? If you did, you could make a killing.
See here for example: https://www.bankofcanada.ca/wp-content/uploads/2015/11/wp201...
> It doesn't make sense. I tell my friends, either things correct in a large way or we're going to be eating $50 cheeseburgers.
Why not? My parents paid 50c for a cheeseburger in their youth and now I pay $5. What doesn't make sense about inflation? It is the expected way in which our market works.
> Why not? My parents paid 50c for a cheeseburger in their youth and now I pay $5. What doesn't make sense about inflation? It is the expected way in which our market works.
My point is that current asset prices only make sense relative to an $50 cheeseburger at current prices, not that inflation cannot occur and cheeseburgers won't be $50 in the future. Again, I don't have the answer. Wish I did. Wouldn't be reading HN at work but building golf courses :).
It would be interesting looking at the peaks of 1/5/10 year averages that contain the actual peaks.
[1] https://www.inflationtool.com/japanese-yen/1989-to-present-v...
It isn't just all the fraud SPACs, it is GME, it is AMC. You can have a business that is overvalued based on the fundamentals, but the future is always unknown. What is interesting about now is that you have companies with huge risks, that are already doing poorly today, and the market is just ignoring it (and btw, you have started to see papers appearing, both theory and practical, that explain how retail money is pushing these stocks...this is something that people in the market already understand but there is point blank ignorance from govt, media, economists, etc.). With dot-com, there was theoretical growth there. With housing, there was structural reasons why the market didn't function. There are often fundamental reasons why these things happen. With this, it is just a wave of money crashing into this small section of the market.
The only exception that occurs to me is HTZ. There was a huge media furore about that, and it turned out that was totally wrong (people who bought at the bottom got more than 10x their money in six months).
For example GME and AMC were able to wipe out their debt snd get a bunch of cash in the door to run their business with via all this retail investment. It’s quite possible having that money will change their story from failure to success.
Betting on horses doesn’t make the horse go faster but betting on companies can.
And, ofc, it is massively value-dilutive in practice for shareholders. Debt is extremely cheap and equity is expensive. And, in this case, massive amounts of value have been destroyed by issuing equity at a valuation that can't be sustained by cash flows. Indeed, what has happened is the exact opposite of what you think has happened: the share price has increased, and that has given management the opportunity to destroy value by rinsing shareholders. Debt holders that were facing total loss have been bailed out by equity. Whatever the value of the debt was, that is the close to the amount that has been lost (because the value of that debt was close to zero).
This is Corp Finance 101 but the marginal investor today doesn't understand this (unf, debt investors do, bankers do, mgmt do...they have made out with a couple of yards, equity got rinsed once again). Nothing goes anywhere in finance. All that is happening in AMC and GME is people trading capital loss between themselves (and debt investors finding someone to buy their capital loss at 100c in the dollar).
The basic premise I’m putting forward, which is that in general investing in an company might have the potential to help that company succeed, is utterly trivial and obvious.
Also trivial and obvious is that fact that an excessive debt burden can cripple and kill a company that might have otherwise succeeded.
There is indeed subtlety to this, needless to say. But basic observation is essentially unarguable: when a whole ton of people decide to buy stock in a company it affects that company’s prospects.
But it is easier to comprehend that, most obviously in the EU, there is a shortage of risk-free assets. It is less that there is too much money and more that there is a mismatch between assets required by investors to match liabilities and what there actually is. My guess is that over the next ten years, we see a move to understand the demand for financial assets in more depth (and from this perspective, QE seems like financial vandalism). Framing purely in terms of supply doesn't really explain what is happening or why people are doing things that make no sense.
I also don't think 2007/08 was a function of too much money at all. It was a combination of structural issues, poor regulation, and a relatively normal financial cycle (people buying things because other people were buying them). What happened in 2008 was the market working effectively. It was after 2008 when the odd things started happening (one very interesting thing to me was Blackstone's property business...they were doing the most overvalued deals at the very top of the market in 2006/07...and they ended up making multiples, that really isn't normal, and the bailout in the view of the Fed was the market working...which is, ofc, totally backwards).
If it ends poorly for someone(s), then it ends fabulously for someone(s) else. The same could be said for gambling... the lure of easy money is difficult for people to resist.
The loser does not realize they have lost money immediately, and while the stock price is up it looks like there are only winners. The losers only realize they have lost money after the asset collapses in price while they own the asset. That is the beauty of these schemes. The losers are already there, they just don't know it yet. Of course they are also heavily motivated to keep the price up to prevent themselves from becoming losers (hence HODL, "apes together strong", etc). These schemes can go on for a while, and a lot of people can make a lot of money in the process (again, at the expense of the losers, no money is being created here).
Stocks are only not zero sum once you account for e.g. dividends being paid out. That applies to companies with a solid foundation, but it is unlikely a company with no income stream that is rooted in fraud is going to be paying out sufficient dividends to their stock owners to account for the purchase price.
It can only be a game of cat psychology.
Whether it ends badly depends on how and for whom you score the game.
No wonder we have a misinformation crisis. It works for politicians, crypto markets, meme stocks, regular stocks, you name it.
It'll still end poorly, but if you choose & time trades correctly it'll end poorly for other people. Choosing and timing your trades is left as an exercise for the reader.
The only source of his wealth might be Worthington Industries, but his track record indicates he has no expertise in making or managing anything, so is he related to someone high up there or something?
https://www.cnbc.com/2021/04/15/theres-a-single-new-jersey-d...
Maybe all these valuations are correct and its the dollar that is going the direction of the zimbabwean dollar ? https://s.wsj.net/public/resources/images/P1-BA632_ZIMDLR_DV...
This is in contrast to Nikola, which is currently listed on Nasdaq and appears to have gone out of its way to deceive retail investors.
This prospective valuation is based on the assumption that the company eventually either goes public on a reputable, retail exchange or is bought for some reasonable fraction of the expected share price. Neither of these is or would be true for the deli.
But I think your overarching point is an excellent one, and it's exactly why I'm skeptical of the valuations implied by fractional VC investments. Especially when they're tied to the Uber model.
Also you can short dog companies still. But if there are to many people shorting it, like GME had, you do run this risk. That's not any internet forum's fault.
That said, it can be really hard to make money betting on stocks to go down. I believe it was Care.com where people were putting out similar reports of how terrible the company was & the horrific incidents happening. In the first half of 2018 you had articles pointing out all these issues. It's stock kept going up around 30% before it finally crashed in the beginning of 2020.
Of course it is only fair to also call out all the quality companies where short investor companies try to keep the price down for ages or publish BS to profit off shorts. That was a big thing for those who were happy to short squeeze during GME.
Tether, either a scam or a criminal money laundering enterprise (or both), has a market cap of over $50B. DOGE, a joke based on an old meme of a Shiba Inu, has a market cap of over $1B.
Not only is the real Tesla's market cap not irrational, at this point I'd say any company that actually has anything of value should be valued in the hundreds of billions. The pizza place around the corner should be at least $100B in that they actually make something.