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Comment by btilly | Hacker News Reader

If that is really his point, then he does not understand value investing.

From the point of view of a value investor, the numbers that you care about are the current price, and how successful you think that company will be. If the current price is below that benchmark, you buy and hold. If the current price is above that benchmark then maybe you want to sell short. (The reason for the maybe is that, the market can stay irrational longer than you can stay solvent.) Either way you're aiming to make a profit off of the difference between long-term returns and the price you bought it at.

Therefore from the point of view of a value investor, everything that helps people lose track of a company's long-term prospects is good for you.

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I'm sure Mark Cuban understands value investing. That's not the issue here. He's not saying you can't still make bets on the future of a company. What he's saying is that because of the high frequency trading, it has become largely more DIFFICULT to be a value investor due to the fact that investing in a company no longer depends solely on said company's success.

When high frequency trading is allowed, the price of a stock becomes influenced by the simple act of trading itself, and while it is true (as @btilly mentioned) that this enables other methods of trading like benchmarking, it discourages investing purely for the sake of supporting the company's growth. THAT was Mark's point. Wall Street's purpose is to INVEST in companies, not to microtrade the crap out of their shares until the stock price is so volatile you'd think the CEO was schizophrenic.

Better than that, an irrational dip in a stock's price due to an analyst recommendation or another factor may represent a good opportunity for a value investor!

Exactly. And we should just stop calling them "Value" investors. This is true for growth investors, any kind of investors, in fact all investors.

Investing is about knowing the difference between value and the price.

When you can do that-- and when I say "knowing" I mean it, and I have a spreadsheet to calculate it-- then you can buy low and sell high.

The problem is wall street is in the business of managing other people's money and most people are ignorant of money, so you have a lot of people who just turn their money over to others to "manage"... and many of those that use other people's money end up gambling with it rather than investing it... this problem is compounded by the moral hazard created by the government bailing these companies out when the gambles turn south (or underwriting the gambling by buying bad securities as helicopter ben is doing right now to the tune of $40B a month.)

The problem with wall street is government regulation which is idiotically designed, and intervention-- in the form of bailouts-- that perverts the entire system incentivizing gambling.

And the people voting for all this, generally don't even know what money is, let alone how to invest it. (If you think the dollars in your pocket are money, then you're one of those people, and I suggest you read http://mises.org/money.asp )

If you walking into the saloon ready to play poker the proper way (you know, 5 cards, held in your hand) and every game at every table is mucking around with Texas Hold 'em, it's no good saying you know the real value of poker - even if you are right, and value is written into your spreadsheet.

Never ignore Keynes' rule - the markets can stay irrational longer than you can stay solvent.

If you are able to afford to buy and hold, then it does not matter how long the markets stay irrational - you've bought it and it should work out.

Where Keynes' rule applies in spades is when you are doing things like shorting an overpriced stock. Now as the price goes up you keep on having to put more money in, and should you run out of money you lose your shirt.

And about poker, there are a lot of variants of poker out there. Texas Hold 'em is what everyone is playing because it has the combination of more strategy and thinner edges. So good players have a real challenge figuring it out, and weaker players have a better chance of walking away lucky on any given night.

Without dividends, there's no reward for buy-and-hold investing, and no reason to pick companies that will actually perform well. Instead anyone who buys is gambling that they'll be able to dump their position at a fortunate time, which leaves them dependent on predicting the irrational market's perception of the company's prospects.

Unfortunately dividends are double-taxed relative to cap gains/interest/etc. Until that's fixed, we won't go back to the era of companies returning money to investors.

Companies can and do return money to investors through stock buybacks. To first order, it is the same as a dividend, except that only the investors who want money get it.

To first order, stock buybacks are equivalent to dividends. To second order, the IRS makes it complicated, as do regulators.

What - really double taxed ? Do you mean dividends are paid out of post tax cash, then taxed as income for the stockholder?

Just wondering

> The problem with wall street is government regulation which is idiotically designed, and intervention-- in the form of bailouts-- that perverts the entire system incentivizing gambling.

Deregulation. http://dealbook.nytimes.com/2009/11/12/10-years-later-lookin...

“Without the...repeal of Glass-Steagall...Washington might not have felt a need to rescue the institutional victims.”

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