This short-term-pervades-the-market is based on the idea that the current stockholders are able to trick future stockholders into buying stocks that have eaten their seed corn, before those future stockholders realize this.
How can this process of continually tricking the next investor possibly work out quarter after quarter? Wouldn't the stock market have tanked long ago if this was, in fact, underlying the bulk of the market valuations?
The reality must be, as soon as investors realize a company is short-term only, they dump and run from its stock, because they will be unable to trick someone else into buying it at the high price.
Some years ago, I knew the CEO of a company who said he did the financials "according to what Wall Street short term investors wanted". The stock promptly tanked as investors actually do not invest that way, and certainly don't want to invest in companies that eat their seed corn.
Take a look at the companies with the biggest market caps in the world - who thinks they are driven by short-term thinking? I don't. The investors obviously don't. And the rewards of long-term thinking are off the charts.
>How can this process of continually tricking the next investor possibly work out quarter after quarter?
I imagine that if the next investor was someone like a retirement fund this could work out pretty well, since they have a steady flow of money being paid in. I don't know to what extent that actually happens.
If short term investing wasn’t valuable why would real estate closest to the stock exchange be priced higher simply because it enables HFT to shave milliseconds of execution time?
I was tracking, I just don’t think the two points are completely uncoupled. If individual companies and by extension the market are long-term focused, there shouldn’t be that much incentive for trading now vs trading 1 sec from now.
Unless I suppose you think those who trade companies and those who run companies aren’t intertwined. I do v think there’s some evidence of short term bias. E.g., taking on debt to fund dividends to give the illusion everything is fine
1 second trades are more an arbitrage thing, not a short-term vs long-term thing. I don't believe quarterly results have any particular influence over high frequency trading, other than in the minutes after the earnings are announced.
Arbitrage is like pouring water into the bathtub. The water will slosh around, eventually finding its lowest energy level, until the next pouring event. Arbitrage is the pull of gravity mixed with friction.
> taking on debt to fund dividends to give the illusion everything is fine
I know that some companies do this. I find it strange they imagine they can fool investors doing this, because they aren't fooling anyone. See the CEO anecdote I posted upthread.
I think there may be some survivorship bias in your thought process. As an example, Enron displayed some massive short-term bias when it had a market cap more than 10x that of Apple. Sure, the market eventually corrected (and wiped out a lot of investors along with it), but pointing to current thriving large cap stocks as evidence of the market only rewarding long term thinking disregards this. In theory, Enron should have never been priced so high had it not had a short term bias to inflate numbers
Enron was actively engaged in accounting fraud, which is a crime and not merely short-term thinking. Once word got out that the company had no actual value, its stock went literally to $0.
But consider the S&P 500. It has its ups and downs, but with an upward bias that has lasted since, well, long before I was born. If the market in general consists of Enrons defrauding their investors, or companies self-destructing by taking only a short term view, how can this upward bias be explained?
If you really believe the market consists of short-term thinking, you can make a fortune shorting those over-valued stocks. Can't say I wish you success doing that, as I am long.
Enron inflated their numbers for short term gain. One example is how they claimed VOD revenue that hasn’t yet occurred.
I get the impression you think I’m claiming the market is always short-term biased. As with Enron, I think the market can be biased in the short term while still being accurate long term when those biases are realized and corrected for. As I think Buffet said, in the short term it’s a voting machine but in the long term it’s a weighing machine.
The problem is if you get caught confusing the two. Just ask anyone who planned on retiring around 2008. The difficulty is knowing when you’re being “irrationally exuberant” or not. We humans are awfully good at fooling ourselves.
Same with the S&P. It’s easy to claim it goes up in hindsight... unless you’re needing to cash out on those sideways decades. It’s not claiming a long position that’s hard, it’s timing it correctly to avoid those sideways and down periods that’s difficult.
I concede my point on HFT, you make good points about it being more about arbitrage.
>they aren't fooling anyone
I disagree on this. Maybe they don’t fool sophisticated investors that make up 80% of market money but I’ve met plenty of small investors who are duped by this very type of thing.
It's hard to imagine successfully duping investors quarter after quarter, year after year, decade after decade with ever more fanciful quarterly reports.
How can this process of continually tricking the next investor possibly work out quarter after quarter? Wouldn't the stock market have tanked long ago if this was, in fact, underlying the bulk of the market valuations?
The reality must be, as soon as investors realize a company is short-term only, they dump and run from its stock, because they will be unable to trick someone else into buying it at the high price.
Some years ago, I knew the CEO of a company who said he did the financials "according to what Wall Street short term investors wanted". The stock promptly tanked as investors actually do not invest that way, and certainly don't want to invest in companies that eat their seed corn.
Take a look at the companies with the biggest market caps in the world - who thinks they are driven by short-term thinking? I don't. The investors obviously don't. And the rewards of long-term thinking are off the charts.