i'm saying that his comment about finance degrees has a zero information gain
i guess i should have made it more obvious and talked about the other stuff you can get from a college experience, stuff that you can't get from a book.
i'm saying that his comment about finance degrees has a zero information gain
i guess i should have made it more obvious and talked about the other stuff you can get from a college experience, stuff that you can't get from a book.
Zenmervolt
Elite member
- Oct 22, 2000
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Ah. It seemed from the posts that you were supporting the idea that a bachelors was worthless.
ZV
I didn't say anything about worrying. I just commented on how general public panicks at the slightest hint of interest raises, even though the job data was above expected and earning season was generally positive.
glenn1
Lifer
- Sep 6, 2000
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Then it seems you're becoming one of those people whom you're decrying in your post, otherwise you wouldn't be worried about the fickleness of the investing public.
Exactly. All being a finance guy myself tells me is how to determine what I think a stock should be worth, not what it's actually going for in the market. You can run as many or as few models as you want, and in the end the value of something is always going to be exactly what someone else is willing to pay you for it.
Vic
Elite Member
- Jun 12, 2001
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Michael has the best posts in the thread.
In a nutshell: record low interest rates have been a key factor in spurring the improving economy. While the Fed has held the funds rate the same, other rate indicators, particularly treasury bonds and conventional fixed mortgage rates, are rising at a dizzingly rapid pace. The concern is not that rates will be raised, the concern is that rates already have raised. There are more "rates" than just the Fed funds rate. And for consumers, rate IS price. When finance costs go up, the consumer loses buying power. Combine this scenario with threatening inflation, particularly in the form of rising gas prices, which futher reduces consumer buying power (in an economy that has thus far improved only on the backs of the consumer) and we ain't out of the woods yet.
The market will regroup to observe the current trend before continuing. They have a legitimate concern. IIRC, the last time interest rates and gas prices rose together and at such a rapid pace was in 1982. For the young'uns: that was NOT a good year. And yet it occurred as an unseen whammy right as everyone thought we were finally climbing out of the Carter recession.
edit: I'm not preaching doom-and-gloom, just sobreity. Unfortunately, that is not often found when laymen discuss the market and the economy. So many people seem to actually like the scenarios that create booms-and-busts, it's a wonder why we created the Fed in the first place...
In a nutshell: record low interest rates have been a key factor in spurring the improving economy. While the Fed has held the funds rate the same, other rate indicators, particularly treasury bonds and conventional fixed mortgage rates, are rising at a dizzingly rapid pace. The concern is not that rates will be raised, the concern is that rates already have raised. There are more "rates" than just the Fed funds rate. And for consumers, rate IS price. When finance costs go up, the consumer loses buying power. Combine this scenario with threatening inflation, particularly in the form of rising gas prices, which futher reduces consumer buying power (in an economy that has thus far improved only on the backs of the consumer) and we ain't out of the woods yet.
The market will regroup to observe the current trend before continuing. They have a legitimate concern. IIRC, the last time interest rates and gas prices rose together and at such a rapid pace was in 1982. For the young'uns: that was NOT a good year. And yet it occurred as an unseen whammy right as everyone thought we were finally climbing out of the Carter recession.
edit: I'm not preaching doom-and-gloom, just sobreity. Unfortunately, that is not often found when laymen discuss the market and the economy. So many people seem to actually like the scenarios that create booms-and-busts, it's a wonder why we created the Fed in the first place...
again.. if you ask me, this is BS. It seems that you guys have a different definition of the word "value" then I do. Sure, anyone can estimate a companies worth... if that estimate isn't correlated to the stocks actual market value, then that estimate is worthless (at least in my opinion).
getting to your point, determing a stocks "worth" is highly related to predicting the companies future earnings (as you stated)... do you really think you can predict that properly?
i still don't agree with this. your whole claim is base on the fact that the market's future value has not changed. again, this is something that you (or anybody else) doesn't know. Given the great job reports that came out over the past two days, there is no reason to assume that people's perception of the market's future value has not changed.
yes, i have. I make a great living working at a large investment bank on wall st. I deal with this crap daily and have never (nor will i ever) claim that I can properly value a company cause I know that those words are meaningless.
i also deal with arrogant people all the time who think that for some reason, they know something that everone else in the market doesn't know.
what good is the ability to figure out what something is "woth" if that doesn't mean that you can predict what its price (today) should be??
I'm going to let you guys in on the biggest, best kept secret in the Finance marketplace. This is the heartbeat of Wall street, the lifeblood of money.
Ducks. Yes, ducks. Ducks are the core of all monetary transactions. Stocks go up or down, companies live or die because of ducks.
And here you thought they were just cute little things in a pond. They are in fact the core movers and shakers in the financial world.
Ducks. Yes, ducks. Ducks are the core of all monetary transactions. Stocks go up or down, companies live or die because of ducks.
And here you thought they were just cute little things in a pond. They are in fact the core movers and shakers in the financial world.
do you realize that our stock market and financial systems are what make capitalism work? would you prefer we became a communist society?
that is just a baseless claim. if you saw the way some bankers on wall st. spend money, you would never call any of them frugal. perhaps the finance people you know are frugal, but you can't extrapolate that to cover all finance people.
oh, and the "millionaire next door" has nothing to do with what a finance major studies (at least I hope not!!). I agree with you that that the book is stupid and teaches nothing more than how to live frugally (though I must admit I only skimmed parts of it and that was a while ago).
Michael
Elite member
- Nov 19, 1999
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Hector13 -There is a great deal of value in the ability to model a stock's "worth". I use it when I make personal investment decisions. I use it when I consider M&A activities. It is part of the total skill set I bring to my job every day and part of the reason I make the salary I do (I hope you agree that this has direct value to me).
What I don't do is think that it will tie to the price people are willing to pay for it on Wall Street every time.
I'd like to say that in the long run discounted cash flow will drive the value of the stock. However, in the long run I'll be dead and many of the assumptions built into the model will be proven wrong or some external force like a merger will make the basis for the model poor.
Again, a stock's value at any given time is what someone will pay for it (and what someone will sell it for).
Michael
What I don't do is think that it will tie to the price people are willing to pay for it on Wall Street every time.
I'd like to say that in the long run discounted cash flow will drive the value of the stock. However, in the long run I'll be dead and many of the assumptions built into the model will be proven wrong or some external force like a merger will make the basis for the model poor.
Again, a stock's value at any given time is what someone will pay for it (and what someone will sell it for).
Michael
perhaps the problem is that I don't understand how you guys can claim to know the "worth" of a company but then clearly state that this "worth" is not related to the company's stock price.... so then what good is it?? Anyone can "value" a company using whatever random model they want.. if their "value" doesn't correspond at all to the market price of the company, then that "value" is worthless.
again, you are admitting that in the long-term, your model's value may have no relation to the stock's price. This has been my point all along.. no wall st. person (veteran or newly grad) can accurately and consistently "value" a stock properly. Those who say they can are full of sh*t.
If you were able to accurately determine the worth of a company even just a small percentage of the time, you'd be a millionaire and wouldn't be posting here or working for someone else's finance firm.
Zenmervolt
Elite member
- Oct 22, 2000
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My initial claim was strictly an over simplified example (and was labled as such in the initial post). My intention was to illustrate why stock prices fall when interest rates are expected to rise. Of course there are more factors that play into the market, but my intent was to explain why the fear of an interest rate hike caused the stock prices to drop. The effective certainty of an interest rate hike in the near future is over-riding the positive job report. Of course there are always multiple variable changing and the expected future value isn't going to hold precisely steady, but in this specific instance the probability of an interest rate hike was the dominating factor.
I had no intention of insinuating that I know more about the market than other people in our field. In fact, I know far less the people who have years of experience even though I know a bit more than the majority of the other Finance majors in my graduating class. However, I most certainly do know more about the market than the average John Doe who has never studied Finance and that is the extent of any claim I may make. I claim only to know more about the market than the people who have never studied it, and the people who have never studied it make up the majority of the population.
If the price today is greater than the "worth", short the stock or buy put options. If the price today is less than the "worth", buy the stock or buy call options.
ZV
Michael
Elite member
- Nov 19, 1999
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Hector13 - You're missing my lack of hubris vs. my confidence in my ability to use my finance skills reasonably well.
Being right only a small percentage of the time doesn't make you a millionaire unless you risk enough capital and are right on what you risk it on.
It has been my experience that my work in determining the "worth" of a stock is usually good enough that the price and the my estimated worth meet often enough for my investments to do well. I've also learned that I can be right and lose money and be wrong and make money.
I have lots of experience with Wall Street and am very comfortable with much of what they do.
Michael
Being right only a small percentage of the time doesn't make you a millionaire unless you risk enough capital and are right on what you risk it on.
It has been my experience that my work in determining the "worth" of a stock is usually good enough that the price and the my estimated worth meet often enough for my investments to do well. I've also learned that I can be right and lose money and be wrong and make money.
I have lots of experience with Wall Street and am very comfortable with much of what they do.
Michael
that gets to the other point I made in my post. If you actually could do what you stated above correctly even only 51% of the time, you'd be a guaranteed millionaire. The fact that no one can do this consistently sort of proves the fact that this "value" that you (and others) are estimating is worthless.
obviously you need some money to invest... but i assume you do know how unbelievably "cheap" option premiums are relative to buying/selling stocks themselves. couple this with the low margins on futures/swaps, and you don't really need all that much money to start off with. if you work in finance and can't get access to something small like even 10k to start off with, than this discussion is moot.
also, if you can "value" stocks properly more than 50% of the time, any hedgefund in the world would pay you huge sums of money to work for them.
Zenmervolt
Elite member
- Oct 22, 2000
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Precisely correct. You need huge amounts of capital and you need to overcome trading costs and other frictions. The vast majority of the time when an arbitrage is found it is small enough that it vanishes when the costs of trading are factored in. And then there is the cost of performaing the analysis which has also to be overcome. In order for a discrepancy between estimated value and market price to be anything other than a weak buy signal, it has to be a large discrepancy, and these are few and far between, though lucrative when found, which is why everyone is out there looking for them.
ZV
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