Hacker News Reader

Comment by yason | Hacker News Reader

It is getting increasingly difficult to just invest in companies you believe in.

Uh, I think it goes:

Buy stocks when it's cheap in comparison to your valuation metric and hold. Collect dividends, or if the stock becomes too overvalued, sell for profit. Start from beginning.

What did I miss?

View on HN

You missed the part where creating that valuation metric is becoming harder and harder due to an increasingly chaotic and fast-moving market.

If you're just trying to predict how a stock's price will change in the next couple of weeks or months under whatever market conditions happen to prevail over that time period, that's speculation. That's what the vast majority of individual investors engage in -- "I think the price of this stock will go up, so I'm going to buy it." Arguing that speculation is hard in a chaotic market gets no sympathy. Actual value investing means you think you have an idea of what shares in a particular company are worth, plus faith that the market price of a stock will reflect that underlying value over the long term. Arguing that value investing is affected requires arguing that market chaos has the power to prevent market prices from reflecting underlying value over the long haul. That's a pretty big claim and requires some justification.

Doesn't gold behave that way? Market forces prevent gold from reflecting the value of using gold for jewelry or industry or whatever else other than playing the market. It seems like an unexceptional claim that there are other financial instruments that are similar.

Gold isn't a good example of any market principle because of its historical and symbolic significance. There's a reason the term "gold bug" exists but not "wheat bug", and there's a reason it was a perfect match for Glenn Beck's theatrics. Who hasn't had a conversation in a bar about the price of gold? Who has had a conversation in a bar about the price of sugar or aluminum? Gold is a magnet for all kinds of emotion, from paranoia to get-rich-quick mania.

Gold is the longest term example I can think of, but it's hard to believe that the stock market game is not a significant percentage of the price of AAPL and that it's solely fundamentals. Stocks in general get that same goldbug enthusiasm when people plan for retirement - buying stocks is partly based on fundamentals, but partly an act of faith in the game.

Are you asserting that almost everything is priced according to fundamentals over the long term, with the single exception of gold?

Reply on news.ycombinator.com