Author Topic: Tesla worth more than Ford  (Read 809 times)

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Online The Latinist

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Re: Tesla worth more than Ford
« Reply #30 on: April 05, 2017, 11:22:13 PM »
There is a difference, Eddie, between price and value.  If one is speculating, then one is concerned only with price and that price can be almost wholly disconnected from the real value of the company. But companies do have a real value, which is rooted in their assets and their ability to create profit (among other things). There are companies that specialize in determining that value, understanding which is essential in, for instance, mergers and acquisitions.  This value does not at all have to correlate to market cap, though for mature stable companies that are subject to less speculation, it often will be.  But for new companies, however, without a track record of profit there is often very little real value in the company.  Potential for value in the future?  Sure, and with with a company like Tesla, much of the price is speculation about that future potential.  But that doesn't create real value, which is why there is a lot more risk with such an investment: because there exists a strong chance that that value will never materialize, at which point Tesla's bubbble will burst and the price will fall to represent the company's real value.
I would like to propose...that...it is undesirable to believe in a proposition when there is no ground whatever for supposing it true. — Bertrand Russell

Offline Fast Eddie B

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Re: Tesla worth more than Ford
« Reply #31 on: April 06, 2017, 08:06:34 AM »
There is a difference, Eddie, between price and value.

Of course.

There are myriad ways to determine what a company is "worth" - probably dozens.

But look at the thread title - "worth" is being put forth as total shares x share price. That's what I was referring to.

I'm specifically addressing those who look at a stock price and attempt to say whether that price is too high or too low - overpriced or underpriced as it were.

My overall philosophy contains a bit of a paradox: I believe in a free, efficient market everything is fairly priced by definition. Extrapolating, one ends up with a "random walk" view, given that at any given moment a stock is exactly as likely to go up as it is to go down in price.

And yet, even if all available information on a company is known to the public - much more a reality today than a few decades ago, one may intuit that certain information that others are ignoring is, in fact, significant. And I think one can profit from intuitions and insights into where a company is and where it is going.

Think about the day it was announced that Steve Jobs was returning to Apple. Ideally, the public found out about that at the same time via press release. But some opined that it was too late for Apple to right a sinking ship. Others, myself included, were ready to buy on a vision of Jobs turning that ship around. And those in the latter camp profited bigly.

I think my point of view was shaped in the 1980's by reading "One Up On Wall Street" by Peter Lynch, which I highly recommend.




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Re: Tesla worth more than Ford
« Reply #32 on: April 10, 2017, 06:56:50 PM »
Over the last year or so I've acquired 100 shares of Tesla. My average basis is $217.

I acquire stocks like this as "flyers" more than investments. Over the years I've done well with speculative stocks like this, with gains in Netflix, Amazon, Google, eBay, Facebook and the like. Most of my portfolio is in more conservative investments, but all of my big gains have been from "flyers", far exceeding losses in similar stocks.

As an aside, I think terms like "overvalued" and "undervalued" have no meaning except in retrospect. In a free market and without manipulation or inside information, a stock is always fairly valued, in that a roughly equal number of buyers and sellers exist at any price point. As I write this, Tesla is worth exactly $301.25, no more, no less. It is, at this moment, exactly as likely to go up as to go down.

If a year from now, Tesla is at $800, we can all agree it was an undervalued bargain at $301.25. If it goes down the tubes, we can all talk about how obviously overpriced it was at $301.25. The key is this only makes sense in retrospect.

My opinion is formed by decades of hearing talking heads pontificate about stock values. For instance, go back in time and you can find those saying Apple was overpriced at $20. It's now at $145, and that's with multiple splits of 2 for 1 and one at 7 for 1.

I recommend Taleb's "Fooled By Randomness", which I think informs my opinion as well.

This is an interesting post, I particularly liked the part that I highligthed because it makes a very subtle but important mistake.

The market price of a stock is indeed "fair" in that it reflects an equilibrium in supply and demand, however it can still be undervalued because the demand is unjustifiably low or supply is unjustifiably high.  In fact, in theory, it is entirely possible to find "bargains" with some insider information, with careful analysis of stock trends and human nature.  In other words, it's not just in retrospect that you can figure out that the price is too low, but you can cheat (with insider info) or be clever and find a model that will predict bargains better than the market.

The correct caveat to issue and the reason why people should generally avoid buying individual stocks is that it's extremely hard to outperform the market.  The market is an information crunching machine that looks at everything publicly known and spits out a price that's very close to predicted value given opportunity costs etc.  And it's very very good at this.  But it's not perfect and makes some potentially exploitable mistakes (some of them rooted in human nature of systematically miscalculating risk, but there are other issues also), however in practice the number of people who are good at this is far outweighed by the number who end up "paying the casino".  So don't be a sucker is the lesson of individual stock investment.

Offline Fast Eddie B

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Re: Tesla worth more than Ford
« Reply #33 on: April 10, 2017, 08:45:07 PM »
I think any disagreements we might have are just around the edges, and maybe just terminology.

I'll respond in more detail in a day or so - camping and limited to my iPhone right now.
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Offline Fast Eddie B

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Re: Tesla worth more than Ford
« Reply #34 on: April 11, 2017, 09:35:49 PM »
OK. Back home.

I recognize a paradox in my position.

On the one hand, I feel that at any given moment, any given stock is exactly as likely to go up as down. If not completely random, them at least unpredictable in practice.

On the other hand, I do believe that with insight and research, one can find companies that in the long run will increase in value, and that will often lead to long term increases in their stock price.

I still don't think "undervalued" correctly describes your hypothetical. I would still hold that the stock is perfectly "valued", but that through "careful analysis" and the other methods you've described, you've selected stocks or companies that you feel have growth potential. I don't think that means they are currently undervalued.

But maybe we're just bogged down in semantics and are essentially on the same page.

And back on topic: GO TESLA GO! I hope at some point I can convert my 100 shares into a practical electric car - ideally a Tesla!
« Last Edit: April 11, 2017, 09:38:29 PM by Fast Eddie B »
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Online The Latinist

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Re: Tesla worth more than Ford
« Reply #35 on: April 11, 2017, 09:57:00 PM »
I disagree strongly that speculation creates value, which is the implication of your position. A company's value is a function of its assets and reasonable expectation of profits. If there is a significant difference between market cap and those fundamentals, the stock is over- or under-valued. That doesn't mean the price is unfair; it just means that it doesn't match the company's value.
I would like to propose...that...it is undesirable to believe in a proposition when there is no ground whatever for supposing it true. — Bertrand Russell

Offline Fast Eddie B

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Re: Tesla worth more than Ford
« Reply #36 on: April 11, 2017, 10:25:42 PM »
Look back and you might note I've been talking about stock price. Or at least I meant to.

My original post on the topic:

"As an aside, I think terms like "overvalued" and "undervalued" have no meaning except in retrospect. In a free market and without manipulation or inside information, a stock is always fairly valued, in that a roughly equal number of buyers and sellers exist at any price point. As I write this, Tesla is worth exactly $301.25, no more, no less. It is, at this moment, exactly as likely to go up as to go down."

Note I said nothing about the value of the company.

Anyway...


Tesla closed at $308.71 today.

Is that undervalued or overvalued? Who determines that? Is there any agreement?

I have come to the conclusion that those terms have no real meaning except in retrospect. If they do for you, that's fine.

Just curious - do you think Tesla is currently either overvalued or undervalued? How about Ford @ $11.28?
« Last Edit: April 11, 2017, 10:42:33 PM by Fast Eddie B »
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Re: Tesla worth more than Ford
« Reply #37 on: April 12, 2017, 05:55:01 PM »
I disagree strongly that speculation creates value, which is the implication of your position. A company's value is a function of its assets and reasonable expectation of profits. If there is a significant difference between market cap and those fundamentals, the stock is over- or under-valued. That doesn't mean the price is unfair; it just means that it doesn't match the company's value.

So you're 100% about this.

Speculation absolutely creates value, but it does have diminishing returns when taken to the extreme.

The value speculation creates is by shifting resources nimbly in response to changing circumstances, allocating them efficiently to where they're most needed.  Fluidity of markets is generally a good thing.

The giant caveat here is that in practice we've taken speculation to such an extreme with HFT that the case for it serving that function is no longer tenable and there are some very measurable negative side-effects.  Luckily there are some regulatory solutions that are pretty painless, like the Tobin tax, that could easily get us back to having the goodness of speculation minus all the negative side effects.  Unluckily we live in a world where sane, practical regulations have a snowball's chance in hell of being implemented because of right-wing political talking points dominating the discourse.

Offline Fast Eddie B

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Re: Tesla worth more than Ford
« Reply #38 on: April 12, 2017, 07:48:24 PM »

The giant caveat here is that in practice we've taken speculation to such an extreme with HFT that the case for it serving that function is no longer tenable and there are some very measurable negative side-effects.

Best to bear in mind that the classic example, tulip mania, occurred a long time before HFT.

For those unfamiliar: https://en.m.wikipedia.org/wiki/Tulip_mania
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Offline daniel1948

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Re: Tesla worth more than Ford
« Reply #39 on: April 12, 2017, 08:38:36 PM »

The giant caveat here is that in practice we've taken speculation to such an extreme with HFT that the case for it serving that function is no longer tenable and there are some very measurable negative side-effects.

Best to bear in mind that the classic example, tulip mania, occurred a long time before HFT.

For those unfamiliar: https://en.m.wikipedia.org/wiki/Tulip_mania

https://www.poetryfoundation.org/poems-and-poets/poems/detail/48333

Quote
The Mower against Gardens BY ANDREW MARVELL

Luxurious man, to bring his vice in use,
Did after him the world seduce,
And from the fields the flowers and plants allure,
Where nature was most plain and pure.
He first enclosed within the gardens square
A dead and standing pool of air,
And a more luscious earth for them did knead,
Which stupified them while it fed.
The pink grew then as double as his mind;
The nutriment did change the kind.
With strange perfumes he did the roses taint,
And flowers themselves were taught to paint.
The tulip, white, did for complexion seek,
And learned to interline its cheek:
Its onion root they then so high did hold,
That one was for a meadow sold.

Another world was searched, through oceans new,
To find the Marvel of Peru.
And yet these rarities might be allowed
To man, that sovereign thing and proud,
Had he not dealt between the bark and tree,
Forbidden mixtures there to see.
No plant now knew the stock from which it came;
He grafts upon the wild the tame:
That th’ uncertain and adulterate fruit
Might put the palate in dispute.
His green seraglio has its eunuchs too,
Lest any tyrant him outdo.
And in the cherry he does nature vex,
To procreate without a sex.
’Tis all enforced, the fountain and the grot,
While the sweet fields do lie forgot:
Where willing nature does to all dispense
A wild and fragrant innocence:
And fauns and fairies do the meadows till,
More by their presence than their skill.
Their statues, polished by some ancient hand,
May to adorn the gardens stand:
But howsoe’er the figures do excel,
The gods themselves with us do dwell.

[Emphasis mine.]

Note: The Mower is a pastoral figure. In the closing line, "us" refers to those who live in nature rather than in the cities with their artificial gardens and artificially-bred fruits and flowers. I feel a kinship with the Mower. I do prefer modern fruits, but wildflowers on the mountain are much nicer than garden flowers. He even shares with me lack of success with women. In other poems we learn that he's in love with the lovely shepherdess, Juliana, who has no interest in him:

https://www.poetryfoundation.org/poems-and-poets/poems/detail/48334

Anyway, IMO a meadow is an over-inflated price for a tulip bulb.
Daniel
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Re: Tesla worth more than Ford
« Reply #40 on: April 13, 2017, 01:16:28 PM »

The giant caveat here is that in practice we've taken speculation to such an extreme with HFT that the case for it serving that function is no longer tenable and there are some very measurable negative side-effects.

Best to bear in mind that the classic example, tulip mania, occurred a long time before HFT.

For those unfamiliar: https://en.m.wikipedia.org/wiki/Tulip_mania

Well these are two very different sets of problems.  Bubbles always existed, but HFTs don't create bubbles, the issues with HFT are increased volatility and misallocation of resources.  Bubbles are minimized by fighting fraud, by regulation of financial industry to restrict shadow banking and by having a central bank that controls currency supply.  HFT type issues are easily dealt with, bubbles are just an inevitable fact of life that you need to handle to avoid catastrophic failures in the system.

Online The Latinist

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Re: Tesla worth more than Ford
« Reply #41 on: April 13, 2017, 01:39:01 PM »
Bubble exist because speculation doesn't create value.  It increases prices—sometimes far beyond the actual value—but it doesn't change the fundamentals underlying the stock or make the company actually worth more. A company will not produce more goods or acquire more assets or pay higher dividends just because tomorrow people suddenly become willing to pay twice as much for its stock.  And eventually the bubble will burst, and all that "value" will suddenly disappear because it never existed...it was just people shuffling money around on a bet.
I would like to propose...that...it is undesirable to believe in a proposition when there is no ground whatever for supposing it true. — Bertrand Russell

 

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