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And then the music stopped

37signals.com

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Re: And then the music stopped

#51

Post by grey-area »

drumdance wrote: post #19
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…

Who is "we?" The market can stay irrational for longer than you can stay solvent.

The we could... quote was from the article and refers to the dear readers without presuming to know what they think - it's an exhortation.

Stock markets behave mostly irrationally in the short term (see Random Walk Down Wall Street), but that doesn't mean you shouldn't attempt to ignore the irrationality and get a little closer to the objective truth - in this case by valuing companies based on what they earn and could earn, not what someone else paid for them or might pay for them.

Depends what you're after I guess - if you are trying to make lots of money in a few days/weeks/years with borrowed money, you'd absolutely have to attempt to predict the irrationality of the market or go bust. On a long time scale with money which is not borrowed/required, you can afford to take a longer view based on profits.

Re: And then the music stopped

#52

Post by sadga »

FlyingSnake wrote: post #38

Selective bias in action. LinkedIn also debuted and is far from a flop and its too early to call demise of Facebook. Sigh, SVN used to a blog about the small guy, the startup people and advice from the trenches. Its sad to see it deteriorate into banal arguments without any merit.

The blog is "Signal Vs Noise". There was never a promise that Signal would win.

Re: And then the music stopped

#53

Post by tatsuke95 »

nirvana wrote: post #28

I'm tired of "Stocks are gambling" nonsense like this. Some companies are valued on the fundamentals. In fact the best investment in the world right now is AAPL, which trades generally between 12-14 times its trailing EPS. This recent "miss" was a "bad earnings quarter" and even then it grew at %20 year over year. (The lowest in the past 4 quarters by far).... but if Apple was a company that only and always grew at %…

>"I'm tired of "Stocks are gambling" nonsense like this."

Definitely in agreement with you here.

>"Its not very difficult."

I assume you have a portfolio that's been killing it. Would you mind posting your results?

>"but if Apple was a company that only and always grew at %20 year over year, then "on the fundamentals" Apple should be trading at 20 times EPS."

The problem is predicting that a company the size of Apple will grow 20% y/y forever. What fundamental reason do we have to believe that? We're sort of in uncharted territory there. For all we know, Apple's decline starts next year. That's the difficulty of this.

>"puts their money into index funds."

There are sophisticated financiers who insist that index funds offer the best value in investing. The world is filled with people who think it's "easy" to get "great" returns in the stock market. The reality is that in an efficient market there are no "great" returns, only average returns. Those returns are based on a function of risk (so the expected returns are the same) and some time value of money.

Re: And then the music stopped

#54

Post by regularfry »

harold wrote: post #30

Those "last-sucker-in-line-investors" could have also invested in LinkedIn [1] and Zillow [2], both of which have done reasonably well after their IPO. Easy to pick a company to use to reinforce a message (37 Signals would have made a better case against non tech company GM [3], which had hype and government assistance and is still on the way down) [1] http://finance.yahoo.com/q/bc?s=LNKD+Basic+Chart&t=2y [2] http://…

DHH has been pretty clear in the past what he thinks about LinkedIn - that they're a disaster waiting to happen - and looking at the P/E he may well think the same of Zillow. The saying about markets staying irrational longer than you can stay solvent applies here.

Re: And then the music stopped

#55

Post by maayank »

46Bit wrote: post #43
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.

So how do you go learning about those industries?

Re: And then the music stopped

#57

Post by ChuckMcM »

tatsuke95 wrote: post #47
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.

Trust me it isn't newsworthy. Granted two of them made it into the top 5 but hey those folks who bought BRHM, they are feeling some real hurt now.

[1] http://www.nasdaq.com/markets/ipos/performance.aspx

Re: And then the music stopped

#58

Post by chollida1 »

nirvana wrote: post #28

I'm tired of "Stocks are gambling" nonsense like this. Some companies are valued on the fundamentals. In fact the best investment in the world right now is AAPL, which trades generally between 12-14 times its trailing EPS. This recent "miss" was a "bad earnings quarter" and even then it grew at %20 year over year. (The lowest in the past 4 quarters by far).... but if Apple was a company that only and always grew at %…

> This makes Apple a screaming deal. There are other good stocks out there, and if you decide to trade on the fundamentals, you can make great returns. Its not very difficult. The thing is, part of the reasons it is so easy is that almost the whole world has convinced themselves that its impossible and instead doesn't invest or puts their money into index funds.

Really, it's not that hard? Do you have a track record to point to?

It's been my experience that most people who say "it's easy" are those who look back and say, yea of course I knew the tech bubble would burst at exactly that point, etc, etc.

There is a saying, right but early is wrong, right but late is wrong. Sadly, it's often not enough to just be right, you either run out of money or nerves, often both:)

Re: And then the music stopped

#59

Post by tatsuke95 »

ChuckMcM wrote: post #57
tatsuke95 wrote: post #47

Earlier quoted context omitted.

> "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.

Trust me it isn't newsworthy. Granted two of them made it into the top 5 but hey those folks who bought BRHM, they are feeling some real hurt now. [1] http://www.nasdaq.com/markets/ipos/performance.aspx

>"Trust me it isn't newsworthy"

I didn't realize you decided what is and isn't newsworthy. A tad arrogant, no? I prefer the market method: if it makes the news, it's newsworthy.

Outside of Michael Kors, I don't know a single company on that list. Meanwhile, Zynga and even moreso Groupon are what you might call "famous". The fact that they both appear on the list of worst performing IPOs is newsworthy. But I'm no authority.

Re: And then the music stopped

#60

Post by stickfigure »

nirvana wrote: post #28

I'm tired of "Stocks are gambling" nonsense like this. Some companies are valued on the fundamentals. In fact the best investment in the world right now is AAPL, which trades generally between 12-14 times its trailing EPS. This recent "miss" was a "bad earnings quarter" and even then it grew at %20 year over year. (The lowest in the past 4 quarters by far).... but if Apple was a company that only and always grew at %…

the best investment in the world right now is AAPL

No, the best investment in the world last year was AAPL. We won't know what the best investment in the world right now is until next year.

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