What if there isn’t true price discovery anymore because market makers, hedge funds, and the GSIBs that bankroll all of them with their customers 401k money, have colluded to artificially manipulate stock prices using algorithmic trading, PFOF etc?
I agree, I’m sure those kind of manipulations happen all the time. Some are intentionally inflating the price and sometimes investors/fund managers have just drank the Kool-aid and are investing in ways that don’t make sense given the fundamentals. So yeah, stock prices can become completely unmoored from fundamentals because these days the money is in buying and selling, not dividends. In fact, I’d guess that stock prices are unmoored from fundamentals more often than not — when they’re high they’re too high and when they’re low they’re too low due to investor sentiment. But I remain somewhat confident that over the very long term (meaning decades) stock prices have some correlation to fundamentals, so they can’t remain artificially inflated forever. Sooner or later someone will make a killing popping the bubble.
What if there isn’t true price discovery anymore because market makers, hedge funds, and the GSIBs that bankroll all of them with their customers 401k money, have colluded to artificially manipulate stock prices using algorithmic trading, PFOF etc?
I agree, I’m sure those kind of manipulations happen all the time. Some are intentionally inflating the price and sometimes investors/fund managers have just drank the Kool-aid and are investing in ways that don’t make sense given the fundamentals. So yeah, stock prices can become completely unmoored from fundamentals because these days the money is in buying and selling, not dividends. In fact, I’d guess that stock prices are unmoored from fundamentals more often than not — when they’re high they’re too high and when they’re low they’re too low due to investor sentiment. But I remain somewhat confident that over the very long term (meaning decades) stock prices have some correlation to fundamentals, so they can’t remain artificially inflated forever. Sooner or later someone will make a killing popping the bubble.