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Investors don't invest because of curiosity. They want to earn money.

jwilliams 14y ago
I didn't mean it in a frivolous way. What I'm saying is it's not a basic value equation. Buying an asset does not create wealth. It's the application of that asset. It's not simply Facebook has a book-value of X -- It's The market thinks Facebook can build more wealth with their $ than Ford.
rabidsnail 14y ago
And the reason they're allowed to earn money is that their capital produces more value than it's worth. The only way that can happen in an efficient market is by taking risk. If you don't want any risk don't invest in the stock market.
rjb 14y ago
Yes. Investors believe Facebook's value perception will catch up with its reality, since they are currently out of whack. They believe the current imbalance is in their favor. It's the only way to make money investing.
- johnhartigun 14y ago
  They may be also thinking "It's overpriced but it will be overpriced even more in the future. If I get off the train early I will earn money."
photon137 14y ago
Investors care about marginal returns. An additional $1 invested into Ford won't bring as much returns as an additional $1 invested in Facebook. Ford's is a capital-intensive business. That's what gives it hard assets that make its market cap 70% of assets (btw, the author totally forgets the liability side of equation - equity investors aren't owed assets - they are owed (assets - liabilities) - look at big banks, they have trillions in assets - but they have equally enormous liabilities too).
- D_Alex 14y ago
  "An additional $1 invested into Ford won't bring as much returns as an additional $1 invested in Facebook." I don't know what investment opportunities Ford has, but regarding Facebook, I really don't think they can invest additional capital sensibly. An additional $1 invested in Facebook will end up being an additional $1 paid for some Instagram-like acquisition. Furthermore, additional $$ spent on Facebook IPO stock will just end up an additional $$ in the founders' pockets.

I didn't mean it in a frivolous way. What I'm saying is it's not a basic value equation. Buying an asset does not create wealth. It's the application of that asset. It's not simply Facebook has a book-value of X -- It's The market thinks Facebook can build more wealth with their $ than Ford.

rabidsnail 14y ago

And the reason they're allowed to earn money is that their capital produces more value than it's worth. The only way that can happen in an efficient market is by taking risk. If you don't want any risk don't invest in the stock market.

rjb 14y ago

Yes. Investors believe Facebook's value perception will catch up with its reality, since they are currently out of whack. They believe the current imbalance is in their favor. It's the only way to make money investing.

johnhartigun 14y ago
They may be also thinking "It's overpriced but it will be overpriced even more in the future. If I get off the train early I will earn money."

photon137 14y ago

Investors care about marginal returns. An additional $1 invested into Ford won't bring as much returns as an additional $1 invested in Facebook. Ford's is a capital-intensive business. That's what gives it hard assets that make its market cap 70% of assets (btw, the author totally forgets the liability side of equation - equity investors aren't owed assets - they are owed (assets - liabilities) - look at big banks, they have trillions in assets - but they have equally enormous liabilities too).

D_Alex 14y ago
"An additional $1 invested into Ford won't bring as much returns as an additional $1 invested in Facebook." I don't know what investment opportunities Ford has, but regarding Facebook, I really don't think they can invest additional capital sensibly. An additional $1 invested in Facebook will end up being an additional $1 paid for some Instagram-like acquisition. Furthermore, additional $$ spent on Facebook IPO stock will just end up an additional $$ in the founders' pockets.