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Comment by asdfasgasdgasdg | Hacker News Reader

Something that's never totally clear to me, either on the upside or the downside: say the largest economy in the world is shut down. Even say it stays that way for three or four months. Does that actually mean that the US' public capital has dropped ten percent in value? It's my very strong suspicion that in two years we will be chugging along again as if this never happened. Why is 10% the right number to contract in that situation?

(In case you can't guess, I'm still 100% long.)

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As they say, in the long run we are all dead. But ya, economic recessions and corrections are like cutting away dead flesh so the healthy tissue can thrive: in the long run it’s good, but their is pain in the short term.

Has the US' public capital dropped 10%? No. But prices are the discounted expectations of future profits, and future profits are suddenly less than we expect them to be.

But it could be worse than that. How long did it take the economy to recover from the Black Death? At least 100 years. If too many people die, then yes, the public capital has actually been significantly damaged.

Ok, so I guess it makes sense that the price would drop a lot since near term profits should be weighted more heavily than long term. 10% still seems like a lot with exponential discounting unless this is going to hit a lot harder and longer than I expect.

Well... What I said is kind of the ideal world. The reasonable value of the stock is the time-discounted expectation of future profits. The actual value is heavily influenced by what each person thinks everyone else thinks. So for the price to drop, people don't have to think it will affect future profits at all. They just have to think that other people will think that the price should drop.

Or you could look at it the other way, why in the world was +10% up from here the "right number" as to its value. Try to justify that first before questioning the contraction.

Well, sure. It's just that large, fast reactions to relatively sudden events seem harder to justify than large slow reactions to continual events, at least when it comes to an investment with a long timescale.

Correct

Also with 80%+ of all trading being algo, they are chasing each other to the bottom. The actual valuations might have been high anyway, but not to justify this.

We are likely going to hit one hell of a bounce once it does find the bottom.

Or, why do we think the value of everything is known to a precision of less than 10%? Maybe both prices are equally accurate.

Think about all those people that felt wealthy based on their portfolio, and were putting money into the economy as a consequence. They don't feel as wealthy now.

They may not feel wealthy now, but unless this is the plague from 12 Monkeys, Asia will recover. If you got hosed in 2008 you're still way up, and will likely be up after this.

And if it is the plague from 12 Monkeys (or The Stand, or other apocalyptic settings) then feeling wealthy is the least of their problems.

> If you got hosed in 2008 you're still way up Except for the fact that the money isn't worth what it used to be.

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