On: Steve Ballmer's Microsoft

[kitsune_]

The market does not think. It is neither efficient nor rational.

If the stock market is about the future, then how do you interpret Goldman Sachs' share price of $235 in November 2007?

1 year later it fell to $53.

A company's share price will tell you nothing about the actual financial stability or future of the company.

[crazygringo → kitsune_]

Neither is it entirely non-efficient nor non-rational.

Obviously, the stock market isn't about the actual future -- nobody knows that.

It's about the expected future, calculated in a pure informational way.

The price = the market's overall evaluation of all currently available information. Obviously it's not perfect, but the point is that if you know better, then you ought to be in investing, not programming, because you'll make a lot more money.

[mrb → kitsune_]

This man is absolutely right.

The stock market is rarely rational. This is exploited by value investors, like myself, who invest in companies that are undervalued for no reason.

[bgilroy26 → mrb]

>value investors

Just following your logic here, value investors bank on the market's eventual rationality?

Or is it rather that a company who is undervalued for no real reason today might be overvalued for no real reason tomorrow?

[MartinCron → bgilroy26]

I don't remember who first said it, but it's worth repeating, "the market can stay stupid longer than you can stay solvent"

[rapind → MartinCron]

If your life savings is invested in one undervalued company then sure, that's pretty risky. If you happen to have a portfolio spread amongst many undervalued companies, then I'd love to be in your shoes no matter what people quote at me.

[harshreality → MartinCron]

John Maynard Keynes. s/stupid/irrational/

[MartinCron → harshreality]

Thank you. I'm not sure if I'm proud or embarrassed to be an unintentional Keynesian.

[cma → mrb]

If the rest of the market undervalues them it can still undermine a value investor by sticking the company with high interest rates on bonds etc.

Keynesian beauty contest etc

[dean → mrb]

"The stock market is rarely rational. This is exploited by value investors, like myself, who invest in companies that are undervalued for no reason."

Which tends to make the market more rational again.

But I agree that the market is not always rational, else there would never be a bubble.