Comment by mancerayder
6 months ago
>Amazing companies can be highly overvalued, and crap companies doing garbage work can be undervalued.
I'm sorry, but how does value matter? I'm not being flippant - the Mag 7 are not 'value' companies. Are Nvidia, Apple, etc., overvalued? And so we should avoid them or short them? Is Tesla 'priced-in'? There's all sorts of psychology in the market. What does 'priced-in' even mean? What wouldn't be priced in. "Water is wet" is what I think of, a tautology, when I hear that all public information is 'priced in'. Things are incredibly dynamic. Here we have at a minimum: algorithmic trading that bounces on common measures like moving averages, institutions that buy or sell at various points strategically (like the big dump when the BOJ raised rates unexpectedly, tax selling, etc.), elections putting oligarch-ish types that own car companies and pump crypto coins, meme stocks that come and go on big reddit forums, regular buys from 401k's into indexes which move markets, etc. etc. With all that going on, to me it feels more "random" than "priced-in".
One more thing. Money is also made not buying and holding, and not trading, but by doing things like 'The Wheel' where you sell puts on something you wouldn't mind holding, monthly, til you get assigned, and sell calls on it, monthly, til it gets called away. In this case, you don't actually have to care very much what the 'value' is, only tracking whether it might have a sudden swing. You don't have to 'time the market' that much either, as you're an insurance salesman.
I'm not saying that people should all jump and do this - but when I read about stocks on HN, I always hear the same counter-argument against 'traders' and 'stock pickers' when there are other ways to make money in the market (i.e. collecting premium).
It's definitely closer to 'gambling' when I put it that way. But I don't see any value in Efficient Market Hypothesis-speak like "is this stock under or over-valued." For that I let the MBA's / golf course discussions / elite experts with insider information rule.
If you compare the forward PE ratio to the regular PE ratio on most of these stocks you will see their profits are growing extremely fast. NVDA has a trailing PE of 55 but a forward PE of 32. TSM has PE of 33 but a forward of 23! A business growing profitability that fast is going to be valued at a premium.
But, when buying those stocks, you're paying for perfect execution. If profit growth doesn't meet expectations, there's a lot of room for the valuation (and the stock price) to fall.