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Comment by messe | Hacker News Reader

By the sounds of it, the board is about to find out what the market rate really is.

We're living in a time when it might well be worth the cost to stand up to a bully.

I mean if it was trading at $8/share isn't the market rate $8/share?

Kinda, but it's complicated. The share price is the number that people will buy and sell as many shares are as actually getting traded, but once you get to significant fractions of the whole company, the marginal cost of the next share can diverge wildly — if one party is trying to get all of them, that may drive up the price a bit, and for any given fraction of ownership there's always someone who sees the share price go up and thinks "hey, I can get even more profit if I hold on for a bit longer!"

Liquidity matters

This. The same thing is happening with Tesla stock. Since it's such a bit part of the S&P500, so half of retail investors buy it in their basket of portfolios and 401ks at trades at 10x it's worth on paper by looking at fundamentals.

That reasoning would lead to concluding all the businesses in SP500 are traded at 10x their worth on paper. Or at least all the ones with market caps greater than Tesla.

Edit, since I hit posting limit.

To pooper:

> Since it's such a big part of the S&P500

The conclusion is based on that premise, so any other business that satisfies that premise should also lead to the same conclusion.

To llm:

> I think their point is that businesses at the top of the S&P500 are traded at sentiment and momentum based values that are pretty disconnected from a logical P/E

I have read the same about other businesses many times. There is nothing logical about only using P/E as a factor in determining price (or “worth”). No one knows the future, so even a price derived from an arbitrary standard of P/E is a “sentiment and momentum based” value.

I think their point is that businesses at the top of the S&P500 are traded at sentiment and momentum based values that are pretty disconnected from a logical P/E, which is valid enough. The multiple happens to be 10x in Tesla's case, it's not 10x for all of them (in the case of Saudi Aramco it's probably less than 1x), but it's much less of an informed valuation than the sheer volume of trading would make you think.

Index adda pop and deletes drop in price.

So index membership does change the stock multiple (but not by 10x).

Also, Tesla is an idiosyncratic stock with very high volatility and very high retail participation. Things can be true of Tedla stock which do not have to be true of the median stock.

Can you please elaborate on this? I am unable to follow the logic here.

I'm claiming this based on fundamental analysis of Tesla's sales/net profits/ROIIC and other metrics, which I take from their 13F fillings (AKA quarterly earning reports) compared to other car manufacturers.

Some stocks are overpriced, and others are undervalued. The inclusion in the S&P500 alone is just 1 of the factors.

In my opinion, Apple and NVIDIA are significantly undervalued based on their fundamentals, even though they make up a gigantic % of the SPX.

I understand, and I’m claiming there is no one logical or fundamental way to derive a price.

It could be logical to ascribe some value to a business’s leader having access to a US president known to be “open for business”? And we know a big tax bill is likely to be passed by year’s end.

Perhaps that will lead to good fortunes for Tesla shareholders. Or maybe not.

You can derive the "true price" with a certain probability. Of course, unexpected things can happen, like Musk being assassinated, but the stock market is not completely unpredictable.

And the thing is, I don't have to be right about Tesla because I'm not making a single bet on that company. I'm making hundreds of bets using my methodology, and it's enough that I'm right 50-something% of the time (or even less than 50%, if we're talking Options trading).

That's what the whole stock market game is about. Hence, some investment companies, like Berkshire Hathaway, consistently make more than others over the long term.

haven’t had my coffee yet but I assume you meant “big” rather than “bit”

yup, i haven't had my coffee yet when I was writing it either :)

LOL, serious question. Is coffee to writing really a thing? It sounds a bit weird to me, but maybe it's shorthand? :)

It's that we open Hacker News right after we wake up and post comments before our brains are in full power, hence the mistakes. Coffee is not a necessity, but most people drink it. I believe it's not exactly about caffeine but letting the brain 30 minutes or so to "wake up" to stop making mistakes. At least, that's how it works in my case.

Aha, thanks very much for the detailed explanation. Absolutely makes sense.

It takes some time to complete the process, so the price is usually based on the likely future value. For companies increasing in value, the offer is usually higher than the current price, and for campanies decreasing in value, it's usually lower.

Also, corrections aren't instant, so if the change of value was for something that had already happened, not something currently happening, the offer will reflect the expected price that the shares would settle at.

When the tide goes out you can tell who is skinny dipping.

(apologies for the below crude metaphor.. but...)

I am 1.80. You can kick me in the nuts and I will fold, but I will still be 1.80 a few minutes later.

Let's see after the kick in the nuts if the price will still be $8.

When there is blood in the water the sharks start circling. And some sharks 'short'. And I know little about their operations of 23andMe, but I understand the _value_ of their data!!!!! So they may be sitting on a pile of Latinum and not be able to fully monetize it (sell it to every pharma/insurance/etc.) company on the planet.

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