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And then the music stopped

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Re: And then the music stopped

#41

Post by dredmorbius »

An article whose logic I'm not particularly enamored of, but whose underlying import probably matters, as magixman noted (http://news.ycombinator.com/item?id=4312648)

IPO valuations, and post-IPO stock performance, have a lot to do with funding rounds for startups. This affects not just startups, but the overall employment and economic climate, especially in startup-heavy locations such as the SF Bay Area.

Given that much of the counter-cyclical economic activity in the Bay Area is a consequence of startup-related companies, I'd expect a fairly broad overall cooling, at best, from the Groupon / Zynga / Pandora / Facebook, et al, experiences.

David (no last name)'s financial logic is flawed. His concerns aren't.

Re: And then the music stopped

#42

Post by wtvanhest »

batista wrote: post #39
wtvanhest wrote: post #13

This is a typical anti-finance rant, with no substence. The only thing that would have made it worse would be a blantently political statement any of the parties. So between just these three, some $40 billion has been extracted from pension funds and other last-sucker-in-line investors. While, in the process, soured many on the idea of the public markets and enriched investment bankers hawking the toxic stocks. Hey,…

> This is a typical anti-finance rant, with no substence. The only thing that would have made it worse would be a blantently political statement any of the parties. Because finance in itself is something like nature, and not at all political and ideological, right?

Because finance in itself is something like nature, and not at all political and ideological, right?

The math in his post is clearly, scientifically wrong and represents a typical rant from an uninformed observer. It would be the equivalent of workers blaming computer scientists (hackers) for eliminating all of their jobs that were based around making phone books.

It is an anti-finance rant, with no substence.

Re: And then the music stopped

#43

Post by 46Bit »

carsongross wrote: post #33

I'm sure I'll burn karma, but let me say it again: there are companies out there generating real, long term value, but the HN news stream ignores most of them. A perfect example is Guidewire, the company I worked for previously, which is up nearly double its IPO price and is rocking the earnings, which has been voted the best place to work in Silicon Valley for two straight years, and which has contributed a JVM lang…

Consumer Internet companies get far more attention than they deserve because their business model involves using your time. There's a massive number of far more interesting, profitable companies in tech that you rarely if ever hear about.

Re: And then the music stopped

#44

Post by rm999 »

unreal37 wrote: post #40
rm999 wrote: post #36

Earlier quoted context omitted.

I guess I'll start with a rebuttal. The stock market is a great place to invest if you understand a couple things: * The market is high risk, people have lost half their life savings in it. You should know how to balance that risk with your needs. With risk comes high reward, the stock market tends to average much higher returns than lower risk investments. * You will never know as much about individual companies as…

I recommend the book "Dark Pools" by Scott Patterson[1]. It is an account of how traders beat each other by microseconds to get an order in, and can find and exploit every possible way they can in order to get an advantage. There is (perhaps) no way a human can compete in the stock market any more. This is the age of AI, where computers are pushing around billions of dollars in an automated fashion. Taking every arbi…

There's a big difference between trading and investing. All laypeople should be investing in the market, but you are talking about trading taken to an extreme. A computer trader may get in and grab 1000 shares, then resell it right away for 10 cents more. He can do that 100,000 times a day and make a good living. But an average investor buys 1000 shares and holds them for 5 years. He's losing maybe a few dollars over his lifetime to these guys.

These high speed investors aren't drastically modifying the value of the market. If they were they would be creating arbitrage situations that would be closed right away.

Re: And then the music stopped

#45

Post by snowwrestler »

unreal37 wrote: post #40
rm999 wrote: post #36

Earlier quoted context omitted.

I guess I'll start with a rebuttal. The stock market is a great place to invest if you understand a couple things: * The market is high risk, people have lost half their life savings in it. You should know how to balance that risk with your needs. With risk comes high reward, the stock market tends to average much higher returns than lower risk investments. * You will never know as much about individual companies as…

I recommend the book "Dark Pools" by Scott Patterson[1]. It is an account of how traders beat each other by microseconds to get an order in, and can find and exploit every possible way they can in order to get an advantage. There is (perhaps) no way a human can compete in the stock market any more. This is the age of AI, where computers are pushing around billions of dollars in an automated fashion. Taking every arbi…

That book, and your comment, conflate two different concepts: trading and investing.

It's possible to invest in the stock market with very little trading. The GP's comment spells out the best strategy--use index funds to spread risk and reduce expense, and invest for long time horizons. This is still a great strategy.

It's also possible to try to turn a short-term profit by trading individual stocks--often called day-trading because you clear your positions within the time period of days. High-frequency trading has greatly reduced price spreads, which makes it harder for the average guy in his underwear to compete. This is not investing though--more like gambling.

For more on how high-frequency trading really works, I recommend:

http://news.ycombinator.com/item?id=3852341

Re: And then the music stopped

#46

Post by grey-area »

jiggy2011 wrote: post #17
grey-area wrote: post #10

Earlier quoted context omitted.

The intended lesson is restated at the end, in case you missed it: Or we could...start valuing stocks based on fundamentals. Valuing stocks on putative future profits based on users, or on comparative values based on other inflated stocks, or based on the price someone paid for some fraction of their shares last week, is not really a solid way to try to calculate value for investors. It's a difficult problem and no-o…

I guess with some of these startups though the ground is so untrodden that's it would be impossible to come up with a way to value them other thinking about things like future monetisation of users. Without it's users, Facebook is worth very close to $0. With it's users? who knows?

Without it's users, Facebook is worth very close to $0. With it's users? who knows?

Well, one way to look at that question is to ask how much revenue they make per user (ARPU) and how much profit right now, and how much they could scale that. Obviously these numbers can be manipulated, and are likely to be optimistic if anything, but it's a better starting point than trying to work out numbers based on what someone paid for 10% of shares, or what someone paid for Instagram, or what they would make if they managed to charge their users a subscription (unlikely in the extreme).

Given their business model (ad supported), the fickle nature of their users, and their strong free competitors (Google, Twitter etc), I personally don't think they are worth $44 per user (assuming 1B users). I think the ARPU is around $1, that's not great, and not likely to grow hugely.

Re: And then the music stopped

#47

Post by tatsuke95 »

ChuckMcM wrote: post #15

"So between just these three, some $40 billion has been extracted from pension funds and other last-sucker-in-line investors." This is incorrect, David takes the change in market cap and then equates that to losses in pension funds. But this does not represent the state of affairs because when companies go public they don't put all of their stock on the market, rather they put a small percentage of the company on the…

>"it isn't newsworthy"

While you are correct on the clarification of market value, I don't see how anyone can claim that these companies having their share prices slashed in half within a year of their IPOs isn't newsworthy.

Re: And then the music stopped

#48

Post by Nelson69 »

rm999 wrote: post #44
unreal37 wrote: post #40

Earlier quoted context omitted.

I recommend the book "Dark Pools" by Scott Patterson[1]. It is an account of how traders beat each other by microseconds to get an order in, and can find and exploit every possible way they can in order to get an advantage. There is (perhaps) no way a human can compete in the stock market any more. This is the age of AI, where computers are pushing around billions of dollars in an automated fashion. Taking every arbi…

There's a big difference between trading and investing. All laypeople should be investing in the market, but you are talking about trading taken to an extreme. A computer trader may get in and grab 1000 shares, then resell it right away for 10 cents more. He can do that 100,000 times a day and make a good living. But an average investor buys 1000 shares and holds them for 5 years. He's losing maybe a few dollars over…

You're right, it's trading vs. investing. Didn't take a genius to buy Google or Apple 5 years ago, no highspeed tricks or anything and you've made a tidy chunk of profit.

Whether or not they're drastically modifying the value of the market is really hard to say, I don't think we know that fully. Honestly, I don't think we understand it that well yet. You can make some fairly reasonable assumptions that it doesn't cost the typical investor that much over his investing life though. I think part of those assumptions are that the high speed traders are simply trying to move faster when they acquire knowledge though, to me, that seems kind of elementary for the guys that invented all these exotic synthetic derivatives and ways to mask risk and shift it around... You couldn't tell me that they aren't trying to think up other uses for those technologies if they exist; like maybe you can measure what counter parties are doing with high performance timing and get some insight.

Fundamentally, are they leaving that few dollars on the table or are they picking them up? It may only be a few dollars but it's a big difference between paying it and taking it.

Re: And then the music stopped

#49

Post by sadga »

unreal37 wrote: post #25

Plenty of people were warning about Groupon and Zynga being unsustainable businesses BEFORE they went IPO, and I have no sympathy for those that played that risky game. It's disingenuous to be outraged about those two stocks being below the IPO price when it was a common sentiment before they went IPO. Facebook is actually a real business, making $1B/quarter in revenue. Maybe they should have went IPO at $8 and allow…

The problem is that individuals invest in funds whose managers chase these fads -- or who invest in broad market indexes. It's hard to find a "no hype" fund to invest in, especially when individuals have their hands tied by employer/government plans that don't offer owner-directed investments. (These 401-K and other non-defined-benefit schemes always seemed a scam to me -- in order to enjoy the tax benefits of saving for retirement, I have to invest only in the funds whose manager bought the fanciest lunch for my HR director?)

Re: And then the music stopped

#50

Post by sadga »

PaulHoule wrote: post #21

I'd say Groupon and Zynga aren't in the same category is FB. Zynga made it big on those "free" ringtones that would cost you $10 a month for the rest of your life. Groupon is a ponzi scheme. Both Zynga and Groupon did quick IPOs because they had to get an exit before they fell apart. Many agents on Wall Street have aided and abetted this (underwriting banks, anyone who bought that stock for you or who encouraged you…

Facebook didn't have to sell stock to comply with regulations. They only had to file paperwork. They IPOd to get the benefits of the IPO ($$$), since they already were facing the bulk of the paperwork requirements.
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