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Path: utzoo!watmath!clyde!burl!jbt
From: jbt@burl.UUCP (jbt)
Newsgroups: net.invest
Subject: Re: Stock market a present value machine
Message-ID: <1159@burl.UUCP>
Date: Tue, 25-Mar-86 08:53:39 EST
Article-I.D.: burl.1159
Posted: Tue Mar 25 08:53:39 1986
Date-Received: Wed, 26-Mar-86 03:34:43 EST
References: <1738@decwrl.DEC.COM> <5931@allegra.UUCP> <2309@jhunix.UUCP> <2053@uwmacc.UUCP>
Reply-To: jbt@burl.UUCP (jbt)
Organization: AT&T Technologies, Burlington NC
Lines: 64
Summary: Yes, Virginia, there really is a present value machine 

In article <2053@uwmacc.UUCP> jwp@uwmacc.UUCP (Jeffrey W Percival) writes:
>In article <2309@jhunix.UUCP> ins_aprm@jhunix.UUCP (Paul R Markowitz) writes:
>>Each investor bases his decision to buy or sell based on whether he thinks his
>>view of the information about a company is better than the other investors.
>
>Not always.  What about the people who buy a stock because they think they
>can sell it next week for twice the price?  No fundamental analysis here.
>
>I'm making a pretty obvious and trivial point, but I was just
>reacting to the people who were, in my opinion, attaching too much logic
>to the market ("present value machine").  The Dow dropped 40 points
>yesterday, and the NPV folks would have me believe that a readjustment of
>the projected earnings stream of the underlying companies caused the
>market to react downward.  I would claim that the market moved in a way
>that was independent of the valuation of the underlying companies and
>earnings streams, therefore the market is at best a profoundly defective
>PV machine.
>
>Another way to phrase it:  The Dow dropped 40 points yesterday.  Will
>the NPV adherents please name the companies whose earnings projections
>changed so dramatically between 3:30 and 4:00 EST?
>-- 
>	Jeff Percival ...!uwvax!uwmacc!jwp

----------
Just a couple of points:
1- Friday's sharp drop was due to arbitrage selling related to the
expiration of stock and stock futures options.  It had nothing to do
with the value of any stock, perceived or real, present or future. 
I have heard several experts say that prices recover/return to
normal very soon after a sell or buy program is exercised.

2- When we consider the effect of perceived value on the price of stock
keep in mind that *the* buyer of stock is a professional-- usually
the manager of a retirement fund, manager of a mutual fund or
someone of similar training and experience. Thus, it is reasonable
to assume that s(he) has full control of emotions!  The majority of stock
is purchased in blocks of 10,000 or more shares-- probably not
triggered by deep emotions.

3- There can be instantaneous events that could easily change the
present value of a stock or the entire stock market.  Such events
might include Paul Volker's resignation, heating up of hostilities
in the Middle East that involves us, or a sharp drop in oil prices ;-)

Enough, I stop for now.  Hope it makes some sense.
---------------------------------------
<<I speak only for myself and the thoughts(?) are mine--my wife says so>>

Jack B. Turner, Planning Engineer
EMSP Project, AT&T Federal Systems Division
Burlington, NC
Phone - 919/228-4321 (Cornet 291)
Usenet- ![ ihnp4 ulysses cbosgd mgnetp ]!burl!jbt
-- 
----------

<<I speak only for myself and the thoughts(?) are mine--my wife says so>>

Jack B. Turner, Planning Engineer
EMSP Project, AT&T Federal Systems Division
Burlington, NC
Phone - 919/228-4321 (Cornet 291)
Usenet- ![ ihnp4 ulysses cbosgd mgnetp ]!burl!jbt