I see a lot of posts on this sub that go something along the lines of:
Person A: "ABC stock is a good investment because the trend XYZ is going to change the world!"
Everyone Else: "Nah dude, XYZ is already priced into ABC"
I want to be sure I understand this "priced in" concept from a more mathematical perspective. When someone says that XYZ is already priced into ABC, they are talking about the market's estimation of the expected value of XYZ, correct? By expected value here, I mean the weighted average of each investor's estimate of the probability that given trend will impact a company multiplied by the investor's estimate of the size of the impact the trend is likely to have on the company. Is it safe to say that the market sometimes "underprices in" the value of a new trend? For example, if I'm more bullish on self driving cars than the the average investor is, would it be valid for me to say that this new technology might not be sufficiently "priced into" a car company? In other words, just because a concept is priced into a stock doesn't mean it's correctly priced in, right?
edit: Added clarification about what I mean when I say "expected value"
Submitted February 05, 2017 at 12:09PM by tsarwalkedintoabar http://ift.tt/2katCK2
