Comments on: Why are private markets booming now? A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: traducere daneza Mon, 29 Sep 2014 14:03:16 +0000 hey, Hey make sure you assist me to affect the elgg, interpersonal torch theme to 1. main You should i want to recognize that site within mod to be able to alter to create my configuration with the active features Ough should create your individual layouts’. Ex., directly into folder views

By: TFF Sun, 03 Apr 2011 15:26:24 +0000 Here’s an additional thought…

How many times a year does a company release significant news? News that has the potential to increase the value of the company by 1% or more?

* Quarterly earnings reports.
* Mid-quarter outlook releases.
* Occasional product-specific events.

There are ~250 trading days each year, and only a dozen or so significant events. EVERYTHING ELSE is macro-driven noise, which by its nature affects the entire market (or at least entire sector) similarly.

So yes, the minute-by-minute correlations are very strong. In the absence of news they SHOULD be strong. But it is the newsworthy events that drive returns for investors (as opposed to traders).

You can obsess about the noise or you can simply look past it. Absent HFT algorithms, the latter is the better approach.

By: TFF Sat, 02 Apr 2011 23:16:01 +0000 spiffy, the perception that “company prices have been completely decoupled from the fundamentals” is only accurate in the short term. In the long term, valuations fluctuate around earnings (albeit with a high-end P/E that is more than twice the low-end P/E, for the same stock). That is why people with a short-term focus are easily fooled.

You will remember the last time we were told that “fundamentals don’t matter” was in the 1999-2000 crash. And guess what? The companies that won that round were the companies with solid fundamentals! If you were one of the herd who bought that bogus line, you probably lost a LOT of money between 1999 and 2002.

Now we are hearing that again — for exactly the same reason. People have no sense of history, no memory, no understanding beyond the market fads of the last year. Thus they are doomed to repeat it.

By: spiffy76 Sat, 02 Apr 2011 02:16:13 +0000 “public stocks tend to move in lockstep with each other rather than due to company-specific fundamentals”

I think that captures a lot of it. The public stock exchanges are so dominated by automatic trading that they no longer provide a useful price for a company’s securities. The real competition is getting in on the front edge of any transition, whether there is any rationale for that transition. Company prices have been completely decoupled from the fundamentals, and what we see as price setting is simply an artifact of the mechanism. The noise well outweighs the signal.

Private markets are much more heavily regulated and controlled. The market makers have reputations on the line, the way specialists once did. There is no high speed trading. Private markets move much more slowly and regularly, so that price setting reaches an equilibrium based on supply and demand, not reaction times and algorithms.

In fact, this might actually be a good time for someone to introduce a new stock exchange based on a sort of “slow food” movement for securities trading. Even with SEC scrutiny and all that entails, it would still offer many advantages for management, employees and investors. Of course, they’d have to have some control over the creation of derivatives, possibly allowing only puts and calls.

It sounds as if we may be watching the stock exchanges of the future in creation while such as the NYSE and OTC are growing increasingly irrelevant.

By: Dan_K Fri, 01 Apr 2011 18:15:38 +0000 This is building somewhat on absinthe’s comment above, but I see two fundamental flaws in this article.

First, regarding the lack of activity in PIMCOs auction. I do not buy the argument that for PIMCOs employees their best investment is to keep large portions of their wealth tied up in PIMCO stock. For an employee of a firm, that is a huge amount of personal risk tied to the fate of one firm. If employees really are not accounting for this risk I wouldn’t be so sanguine about PIMCOs future prospects.

This leads to the second problem with the article. Put aside the unlikely outcome that PIMCO employees don’t want to diversify their risk away from their source of income. This implies that lack of sales is a result of poor prices (perhaps because the buyer and seller pools are small and homogenous, all being employees of the same company). This, in turn, implies that the likes of SecondMarket are not exactly solving the problems of private markets.

I find your argument that certain constituencies, like employees, are left out of the gains in private ownership both more compelling and a more compelling argument for why this shift is occuring. Private markets have gotten large and efficient enough at facilitating transactions that large capital holders can take advantage of these inefficiencies to capture a greater share of the pie.

By: mhrand Fri, 01 Apr 2011 16:27:23 +0000 Government policies are increasingly favoring rich investors at the expense of the little guy. The gateway for becoming an accredited investor was recently narrowed by increasing net worth, liquid assets, etc. required to pass through… SarbOx is certainly biting. And look at why Goldman took their Facebook shares overseas: restrictive US policies on dissemination of information ahead of an offering.

By: lambertstrether Fri, 01 Apr 2011 14:40:01 +0000 Felix:

Maybe while you’re there, you could ask the conference organizers why there aren’t any of the qualified economists from UMKC on the panel, even I see they’ve managed to work in Megan McArdle, of the chattering class.

After all New Economic Perspectives is right here in KC, just like the conference itself, so they’d save themselves a plane ticket — not negligible in these parlous times.

http://neweconomicperspectives.blogspot. com/

Could it be that any MMT advocate is persona non grata at events like this?

By: absinthe Fri, 01 Apr 2011 01:05:37 +0000 err, should read “(is the public clamoring for access to a winner’s curse?)”

By: absinthe Fri, 01 Apr 2011 01:03:31 +0000 1) Why do you think buyers outnumbered sellers (whatever that means in the presence of a clearing mechanism with voluntary participation)? There was a large group of sellers (employees), and as you point out most of them didn’t participate (suggesting that the anticipated clearing price was too low). On the buyers’ side, however, there are some strong restrictions (as your public-policy objection points out).

2) Do you really think it’s good portfolio management for employees to hang onto their company’s equity, particularly given its lack of liquidity?

The way I see these markets, the prices reflect an equilibrium between prices that could be “too low” (due to constrained demand, as evidenced by regulation) or “too high” (due to constrained supply, since only a small fraction of equity is available at any given time). So you get shallow valuations determined by a limited group of buyers. Since the auction format puts the competitive pressure on the buyers’ side, it seems reasonable that would lead to overpriced valuations – but then why wouldn’t more employees participate? It’s not at all obvious how it plays out, so the public policy claim has shaky empirical grounds (are workers clamoring for access to a winner’s curse?).