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0 pointsvasilipupkin8y ago0 comments

Look, cars that have specific features cost more than cars that don't have those features. That's objective. Stocks of companies that are very profitable, like google are more expensive than stocks of companies that are not. That's objective. Right ?

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sbenitoj8y ago· 2 in thread

Correct, but it's people's perception of value that ultimately drives the current stock price.

Take Amazon as an example, in 2016 its net income was $2.4 billion, yet it currently trades at a total market capitalization (the value of all outstanding shares) of $471 billion (or approximately 196x its net income) [0]

Compare that to Ford Motor Company, in 2016 its net income was $4.6 billion, yet it currently trades at a total market capitalization of $45 billion (or approximately 10x its net income) [1]

So Ford was actually MORE profitable than Amazon in 2017, but it's market capitalization is only 10% of Amazon.

So what's driving the differences? People's perception of value. People perceive that Amazon will be more profitable than Ford Motor Company in the future, even though objectively Ford is more profitable than Amazon right now.

[0] Amazon Financials - https://finance.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii...

[1] Ford Financials - https://finance.google.com/finance?q=NYSE%3AF&fstype=ii&ei=z...

vasilipupkinOP8y ago

they perceive it because Amazon is growing faster than Ford, which is an objective metric. Not because they simply completely subjectively decided that amazon is more promising - there are quantifiable OBJECTIVE metrics that this is the case

sbenitoj8y ago

You're saying Amazon is growing faster than Ford, but they're not growing faster in terms of profitability (even if people perceive that Amazon will be more profitable in the future). Yes Amazon revenue is growing faster than Ford revenue, but is that the metric that matters most?

Maybe, maybe not, it's subjective, only individuals can decide for themselves.

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