Active vs. Passive
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[quote=iceco1d]Just out of curiousity, and I know I’m probably wasting my breath here, BUT:
What would it take for you guys to "bury the hatchet" as Windy would say? Really, there are more entertaining members to go to war with...like LA Polesmoker! Just a humble request. [/quote] I have offered a number of times, however he can't stand anyone disagreeing with anything he says. I have avoided threads he has posted in, only to have him quote me with claims that could be construed as libel. I am more than willing to play nice and avoid this person, just as I stated before. Let me state this in a different manner. Bobby, I am willing to avoid conversing with you on this board if you will extend me the same courtesy. Deal?[quote=iceco1d]Just out of curiousity, and I know I’m probably wasting my breath here, BUT:
What would it take for you guys to "bury the hatchet" as Windy would say? Really, there are more entertaining members to go to war with...like LA Polesmoker! Just a humble request. [/quote]I'm not open to it. In fact, I'm going to turn up the gas so high that he'll remember me for the rest of his life.
[quote=Sam Houston] [quote=iceco1d]
As far as the investment & economics discussion goes, I find myself on the same side of thee table with Sam, for once…which means, I’m on the other side of the table from Moraen, also for once.
Interesting.
It’s nice to know that this particular table is a friendly one though; at least until Lame Ass Broker chimes in.
Man it was a long day once I got off this board this morning.[/quote]
Thanks Ice, although I would say we stand on the same side on many issues. I just use different tools than you, but we are doing very similar work IMO.[/quote]
I think all opinions can be respected. And ribbing is fun. I can take my lumps just as well as anybody.
To answer you question (sorry, the wife had me do some… ahem, things).
Assume for the sake of argument, you have bought the shares of a publicly traded startup biotech firm. You bought these shares for $1.00. Now in one day the FDA panel will vote on whether to recommend approval to the FDA or not on a new drug. This stock is not widely known, but the people who follow it have been following very closely. The day the FDA panel votes, they will stop trading. The drug has been proven 99% safe and has an efficacy of 45% - not bad, but could be better. We don’t know which way they will vote, but it is a pancreatic cancer drug that has increased peoples lives by five years. It looks good. If approved, the drug could do $1 billion in sales and the stock could go to $30 a share.
All of the shares in the float are accounted for. The last trade was $1.00. Sam, you own 1000 shares. My cousin tells me about the stock. He won’t sell any of his, but he says I ought to get in on it. I only want to buy 999 shares because my wife told me I couldn’t buy more than that. You are willing to part with all of your shares for the right price. What are you willing to sell those shares to me for? More than a $1? Remember, I’ve only demanded 999, but you have a supply of 1000. No one else has heard of it or wants to try their hand at the gamble
Closing bell is coming. Will you sell me the shares for a $1 or less? Or not? What is the right price on 999 shares of this stock for you? Is there a right price?
Economics is the study of incentives. If I give you enough incentive (a higher price), you will sell me the stock. Same goes for nearly anything.
Intersting hypothetical. First of all, on a thinly traded issue, I would price it so that kills your hypo. Ignoring that, the price will come down. That market maker looks to fill your order for 999 shares at the current market price, and then starts raising the price until someone offers up the needed shares. Your situation is not rooted in reality, however in theory this happens everyday on a much larger scale with larger #'s of shares. The other flaw in your hypo is I am only willing to sell 1000 shares all or none or no sale at all at my price. Therefore, any offers below my price (whatever it is) effectively has a demand of 999 shares and a supply of 0. Price goes up until my price is hit. Then only 999 shares exchange hands. Now there is a supply of 1 share and no demand. Price will go down. However, since I am unwilling to sell at a lower price, we have a stalemate until more demand comes into the market.
[quote=Moraen] [quote=Sam Houston] [quote=iceco1d]
As far as the investment & economics discussion goes, I find myself on the same side of thee table with Sam, for once...which means, I'm on the other side of the table from Moraen, also for once.
Interesting.
It's nice to know that this particular table is a friendly one though; at least until Lame Ass Broker chimes in.
Man it was a long day once I got off this board this morning.[/quote]
Thanks Ice, although I would say we stand on the same side on many issues. I just use different tools than you, but we are doing very similar work IMO.[/quote]
I think all opinions can be respected. And ribbing is fun. I can take my lumps just as well as anybody.
To answer you question (sorry, the wife had me do some... ahem, things).
Assume for the sake of argument, you have bought the shares of a publicly traded startup biotech firm. You bought these shares for $1.00. Now in one day the FDA panel will vote on whether to recommend approval to the FDA or not on a new drug. This stock is not widely known, but the people who follow it have been following very closely. The day the FDA panel votes, they will stop trading. The drug has been proven 99% safe and has an efficacy of 45% - not bad, but could be better. We don't know which way they will vote, but it is a pancreatic cancer drug that has increased peoples lives by five years. It looks good. If approved, the drug could do $1 billion in sales and the stock could go to $30 a share.
All of the shares in the float are accounted for. The last trade was $1.00. Sam, you own 1000 shares. My cousin tells me about the stock. He won't sell any of his, but he says I ought to get in on it. I only want to buy 999 shares because my wife told me I couldn't buy more than that. You are willing to part with all of your shares for the right price. What are you willing to sell those shares to me for? More than a $1? Remember, I've only demanded 999, but you have a supply of 1000. No one else has heard of it or wants to try their hand at the gamble
Closing bell is coming. Will you sell me the shares for a $1 or less? Or not? What is the right price on 999 shares of this stock for you? Is there a right price?
Economics is the study of incentives. If I give you enough incentive (a higher price), you will sell me the stock. Same goes for nearly anything.[/quote] Isn't that supply and demand? You said in an earlier post something to the effect that when put to the test supply and demand fails. Here you created the demand, you have a desire to own those shares. Sam has the supply. Supply and Demand.
Intersting hypothetical. First of all, on a thinly traded issue, I would price it so that kills your hypo. Ignoring that, the price will come down. That market maker looks to fill your order for 999 shares at the current market price, and then starts raising the price until someone offers up the needed shares. Your situation is not rooted in reality, however in theory this happens everyday on a much larger scale with larger #'s of shares. The other flaw in your hypo is I am only willing to sell 1000 shares all or none or no sale at all at my price. Therefore, any offers below my price (whatever it is) effectively has a demand of 999 shares and a supply of 0. Price goes up until my price is hit. Then only 999 shares exchange hands. Now there is a supply of 1 share and no demand. Price will go down. However, since I am unwilling to sell at a lower price, we have a stalemate until more demand comes into the market.
Sam,
So are you saying that if I offered you $30 a share, you would not change your mind to sell 999 shares?
And then then next day, when trading stops, let's say the board says go ahead and sell the drug - is the price going to go up, or down? Likely demand will increase - people will now want it (demand will go up). Thus proving supply and demand - in this case.
By the way, I can prove that this actually happens - it did a few weeks ago. Thinly traded, ridiculous differences in pricing. Unfortunately, proving it would require I violate all kinds of rules. And I am not Windy. I realize that this is easy for me to say, especially since I refuse to actually produce said proof. I will accept whatever ridicule you give for not producing the results, but I'm not going to post or fax, or do anything to violate the trust of my clients.
JK and Sam,
What I said was that supply and demand doesn't ALWAYS work. For the most part (especially in the publicly traded markets - oh, but what about private placements?), it does. However, any time you can prove a law wrong, it is no longer valid EVERY time.
Here is an example:
Does anybody know the story of black pearls? Black pearls originally didn't sell. No one wanted to buy them. These are rare.
One year later, they were placed back on the market - at astronomical prices. They sold out the first week. These pearls cost on average $32 to harvest.
Now, the supply has really not changed, but demand has gone up. Why?
If you can answer that correctly, you will now know WHY supply and demand doesn't always work.
For those of you who feel like I hijacked your thread, let me know and I'll take it to another thread. Love discussing this stuff.
Morean,
YOU HIJACKED MY THREAD!! But I don't care since I am in on the supply v demand debate.
In your black pearl example. Demand was created. In this case, perceived demand. "They must be very valuable, look at the price, we NEED those honey.
Oh and far be it from me to argue economics with a person going for their PHD in economics. I'm way out of my league. I personally feel at the very root of everything supply and demand is always present. Even if the demand is falsely created by the supplier.[quote=Sam Houston] Intersting hypothetical. First of all, on a thinly traded issue, I would price it so that kills your hypo. Ignoring that, the price will come down. That market maker looks to fill your order for 999 shares at the current market price, and then starts raising the price until someone offers up the needed shares. Your situation is not rooted in reality, however in theory this happens everyday on a much larger scale with larger #'s of shares. The other flaw in your hypo is I am only willing to sell 1000 shares all or none or no sale at all at my price. Therefore, any offers below my price (whatever it is) effectively has a demand of 999 shares and a supply of 0. Price goes up until my price is hit. Then only 999 shares exchange hands. Now there is a supply of 1 share and no demand. Price will go down. However, since I am unwilling to sell at a lower price, we have a stalemate until more demand comes into the market.
Sam,
So are you saying that if I offered you $30 a share, you would not change your mind to sell 999 shares?
And then then next day, when trading stops, let's say the board says go ahead and sell the drug - is the price going to go up, or down? Likely demand will increase - people will now want it (demand will go up). Thus proving supply and demand - in this case.
By the way, I can prove that this actually happens - it did a few weeks ago. Thinly traded, ridiculous differences in pricing. Unfortunately, proving it would require I violate all kinds of rules. And I am not Windy. I realize that this is easy for me to say, especially since I refuse to actually produce said proof. I will accept whatever ridicule you give for not producing the results, but I'm not going to post or fax, or do anything to violate the trust of my clients.
JK and Sam,
What I said was that supply and demand doesn't ALWAYS work. For the most part (especially in the publicly traded markets - oh, but what about private placements?), it does. However, any time you can prove a law wrong, it is no longer valid EVERY time.
Here is an example:
Does anybody know the story of black pearls? Black pearls originally didn't sell. No one wanted to buy them. These are rare.
One year later, they were placed back on the market - at astronomical prices. They sold out the first week. These pearls cost on average $32 to harvest.
Now, the supply has really not changed, but demand has gone up. Why?
If you can answer that correctly, you will now know WHY supply and demand doesn't always work.
For those of you who feel like I hijacked your thread, let me know and I'll take it to another thread. Love discussing this stuff.[/quote]
This is why guys who charge LESS than 2% in fees are chumps.
I actually think we are on the same page, I think what you are getting at is the pricing and I’m just talking generically about supply and demand. In that case I believe you are correct in that it doesn’t always work to find prices based on supply and demand.
[quote=jkl1v1n6]
Morean,
YOU HIJACKED MY THREAD!! But I don’t care since I am in on the supply v demand debate.
In your black pearl example. Demand was created. In this case, perceived demand. "They must be very valuable, look at the price, we NEED those honey.
Oh and far be it from me to argue economics with a person going for their PHD in economics. I’m way out of my league. I personally feel at the very root of everything supply and demand is always present. Even if the demand is falsely created by the supplier. [/quote]
JK- Awesome! But in this case, the PRICE created the DEMAND. The price set was arbitrary. The price was not affected by supply or demand.
And I’m not even close to getting my Ph.D. yet - at least five years, so feel free to smack me down whenever you get a chance. Ph.D.'s don’t know everything - I think in our industry we see evidence of that every day. And I SURE AS HELL don’t know everything.
I just try and look deeper into issues. Like a kid. “Why?” “How?” “Are you sure?”, or a teenage boy, “Let’s just see what happens if I put the tip in”. Once you’re in, go deeper. Are you going to stop if she says that’s it, that’s the best it’s going to feel?
And I’ll eat crow if I’m wrong.
Black pearls also known as a Veblen good!
Gotta love Wikipedia. These debates always teach me something. But still eventually wouldn't supply and demand set the price. If a glut of the black pearls came on to the market and they weren't so rare anymore, wouldn't it drive the price down?JK - Possibly. Unless they take them off of the market for a few years. And then bring them back at a distinctly lower (or higher price). We agree to prices likely because of our memories.
Let’s go back to the gas example: $2.50 a gallon (or thereabouts). What if all of our memories were wiped the day before gas shot up to $4.00 a gallon? Would we think that is expensive?
Btw - much of this isn’t mine. It’s from a collection of behavioral economists, primarily Dan Ariely.
The simple fact is, prices are pretty much up in the air. Take stock analysis for instance. Is the price for a new issue set arbitrarily - or do IB’s use a little bit of anchoring to set the price of an initial offering. Visa for instance. What was the IPO of Mastercard? What was the price of the IPO of VISA? About the same. If we look at the companies’ respective financial statements at the times of their IPOS, what justified this price?
Ok. I seriously HAVE to get some work done. The Wind saga, beating up on LA and then this thread. I’ll catch back up with you guys in a few days or so. Somebody PM me if it gets crazy on here again.
Jaxson,
What info do you look at to determine what to pick from your list? If you look at the rates of return for any time frame you are using past performance to influence your decision.[quote=jkl1v1n6]Jaxson,
What info do you look at to determine what to pick from your list? If you look at the rates of return for any time frame you are using past performance to influence your decision. [/quote] For now, I am basically a cold caller. So I pick whatever is on my employer's buy recommendation list and go from there. I realize what you are saying. But nice try.Jaxson,
I tried! Word of warning to you, you might want to do a little due diligence on your own. When I was with Jones they had World Com as a recommended stock.