The European Tribune is a forum for thoughtful dialogue of European and international issues. You are invited to post comments and your own articles.
Please REGISTER to post.
All valuation has a degree of subjectivity as price really is set by buying pressure vs. selling pressure.
And that's where you're missing my point.
I'm not talking about the specific value of a share in isolation, but the fact that the Ponzi effect distorts values across the entire market - which is mainly what drives the creation of bubbles and the apparent creation of value out of thin air.
We're really talking about different feedback loops. At the first level you have 'rational' investment, based on an expectation of return defined purely in terms of the business itself. E.g. if I know that I have X amount of something valuable but I need $Y dollars to bring it to a saleable state, it's easy for me to estimate whether or not an investment is worthwhile.
When those expectations can themselves be traded as abstract entities, you add another feedback loop which is divorced from the 'rational' value. At this point you're dealing in fictions, and it becomes a case of what you can get away with or (literally) persuade others to buy.
This where the Ponzi effect starts driving a bubble. Book values become a combination of 'rational' values, inflated faith-based values, and semi-random volatility created by trading momentum and market-making plays by those who want to cream off a few extra %, just because they can.
In reality-based terms we're now a long way from rational values, and deep into a place where rooms full of people with servers make shit up. Book values are an act of faith and exist only as long as people are willing to keep that faith in a future return. This becomes defined by market momentum, and not so much because of a specific business case.
Once that faith disappears the bubble pops, and values return to something that might pass for a rational assessment.
A company like Apple can catch the wave of sentiment that drives a bubble and ride it to the top of the optimism curve. But the rational element of share value can easily be swamped by pseudo-value created by Ponzi-like trading.
(Did we learn nothing from the Internet bust?)
As for taxes preventing volatility - considering the almost mythological volumes of trading on the markets, these taxes don't seem to do much to dampen enthusiasm for speculation.
by Frank Schnittger - Feb 2 1 comment
by Frank Schnittger - Jan 26 3 comments
by Frank Schnittger - Jan 31 3 comments
by Frank Schnittger - Jan 22 3 comments
by Cat - Jan 25 61 comments
by Oui - Jan 9 21 comments
by Frank Schnittger - Jan 13 28 comments
by gmoke - Jan 20
by Oui - Feb 32 comments
by Frank Schnittger - Feb 21 comment
by Oui - Feb 225 comments
by Oui - Feb 14 comments
by Frank Schnittger - Jan 313 comments
by gmoke - Jan 29
by Oui - Jan 2731 comments
by Frank Schnittger - Jan 263 comments
by Cat - Jan 2561 comments
by Frank Schnittger - Jan 223 comments
by Oui - Jan 2110 comments
by Oui - Jan 21
by Oui - Jan 20
by gmoke - Jan 20
by Oui - Jan 1841 comments
by Oui - Jan 1591 comments
by Oui - Jan 145 comments
by Frank Schnittger - Jan 1328 comments
by Oui - Jan 1221 comments
by Oui - Jan 1120 comments