Kevin and ALL >>Should", well, maybe. But wouldn't it be boring if it did? No need to even open the exchange.<<
Good point. The exchanges provide liquidity. You want your buck today, you sell. You want to spread it out and making the appropriate risk adjusted return you buy. Notice that supposedly, taking aside transaction costs (which should include the spread) market transactions have a NPV (net present value) of 0 (zero). Let's analyze one transaction:
the one who sells a share gets $X/share (this we all see), the one who buys gets cash flows whose present value discounted at the appropriate risk adjusted rate of return is $X/share. We see that NPV of the transaction is 0. otherwise someone is taking someone for a ride. The theory goes into saying that the markets are so competitive that X is the best bet on what the PV of the future cash flows is (in other words Sharpe and friends are mainly of the opinion that we at SI are just wasting our time)
I know the real world is not exactly like this and that the market is not 100% efficient but these simple models help us think better about the behaviors we observe. It is like physics. All those models we study in HS (high school) College, for simplicity, assume friction can be neglected which is a valid assumption in most real situations (i.e., when you throw a rock from a building but not when you throw a sheet of paper).
regards,
Pancho
PS: I forgot the rest of my homework!!! yes y2k problem may go beyond the year 2000. I am allowing for three years beyond 2000 (this may not be enough according to you). It is even possible that one or more of the y2k players develop significant alternate revenue sources and even take over MSFT, PLAT (this is another one I think will eventually run into trouble with is business acquisition strategy), SAP, etc.
I have worked as consultant/developer/project leader for firms of appx. the size of the typical y2k companies: 30-60 employees, annual sales in the ballpark of 10-20 million. Have managed consulting projects in the order of 0.5 to a couple of mil. involving software development as the main deliverable. IMO, management of most of this companies is not prepared to manage/implement aggressive growth strategies. Also, projects are invariably late (12 month projects become 24 month projects) because of client negligence/mediocre workers at both ends of the stick. Also, the consulting firm have a tendency to screw themselves with the fees (i.e., charging too little, over-promising and/or not being careful enough with the terms of the contract. Sometimes a client lawsuit at the end of the project is the final prize for all the hard work! (wonder if we will see this as the main piece of news in the continuation of the y2k problem). You see I am sure we disagree in many of these matters and we could go on wasting our time on endless discussion. Instead, we will be wise and let time tell us. All I can tell you is that y2k stocks are a significant fraction of the short side of my hedge portfolio that will definitely hurt my performance but I would not have to jump from the Tobin (sp?) bridge. I currently have a 30% net long exposure which is a conservative posture. If something drastic happens either side of the equation, you will not see me as happy or as sad as other floks.
Good luck to you too. Thanks for your non-offensive style which got you a detailed 20 minute answer which in my times as consultant would have cost about 60 bucks. One last thing, as mentioned in another thread, I will not post again here unless the stock price goes under $10. So it is possible you will never again hear from me |
