This question is quite broad as obviously the answers are different across different instruments, financial assets, micro/macro, etc. So I what I am asking is about the meta-skill: if I want to find out what's priced in for a particular instrument, how do I go learn to find this out? So far, the two solutions that come to mind are "purchasing a course" (which, no) and trying to piece it together from hints by various pundits in various podcasts - interesting and inefficient, and sometimes likely to lead a noob astray because one isn't necessarily knowledgeable just because one is on a podcast.
How would you go about learning this? Is it even meaningful to ask this question in general terms?
What is priced in? How does one learn to figure this out?
Re: What is priced in? How does one learn to figure this out?
I teach kids this using ebay or any other auction.
Stocks are too tricky to start with. Just a bunch of numbers on a screen. Glossy annual reports don’t tell the whole story.
Start looking at a class of items on eBay. Once you start getting into a category like old Mickey Mouse watches you’ll see what makes an auction close higher. Of course use the completed auction tab. For the most part that is due to “priced in” info. Like a big scratch on the item. Or mentioning the watch was bought at the Disneyland 50th anniversary and it is engraved as such. All the bidders know the particulars and bid appropriately.
I trade in window regulators for Mercedes cars. I take them from the inefficient marketplace of the self serve junkyard where they sell at a fixed price regardless of car make. And I take them to an efficient marketplace - eBay. Before I list them I fix the single broken gear tooth that always fails with bronze braze. On my auctions I show all the intact teeth. Other sellers didn’t always do this in the past and it was a crap shoot buying one especially if you were too dumb to ask. You’d likely get a regulator just as broken as the one you were trying to replace. Once I started discussing the importance of intact gear teeth in my auction listings the prices in everyone’s closings readjusted. This is information getting priced in. You can tell bidders and they’ll bid appropriately. You can hide it from bidders and they’ll bid appropriately.
In stocks l used to foolishly screen using discounted cashflow to find bargains when my PV would fall below market. What I learned, the hard way, was that every other idiot with an MBA knows how to do this and has done it for their boss and distributed the answer all over and made the info worthless. Priced in. The problem is when the PV comes in low because something is wrong with the future earnings and only a few actually know.
In closing I always like the words of Forbes columnist Ken Fisher “you need to know something other people don’t know”. This is one of his one of three things that matter in a trade.
ETA - since we like to discuss love relationships here I’ll mention this priced in effect is alive and well there. How many times have you naively encountered a new group and seen the attractive member that nobody seems to commit to? What’s wrong with her? What’s wrong with him? Something is priced in. Domestic abuser, heartbreaker, substance abuse. Psychological problems. The market knows.
Stocks are too tricky to start with. Just a bunch of numbers on a screen. Glossy annual reports don’t tell the whole story.
Start looking at a class of items on eBay. Once you start getting into a category like old Mickey Mouse watches you’ll see what makes an auction close higher. Of course use the completed auction tab. For the most part that is due to “priced in” info. Like a big scratch on the item. Or mentioning the watch was bought at the Disneyland 50th anniversary and it is engraved as such. All the bidders know the particulars and bid appropriately.
I trade in window regulators for Mercedes cars. I take them from the inefficient marketplace of the self serve junkyard where they sell at a fixed price regardless of car make. And I take them to an efficient marketplace - eBay. Before I list them I fix the single broken gear tooth that always fails with bronze braze. On my auctions I show all the intact teeth. Other sellers didn’t always do this in the past and it was a crap shoot buying one especially if you were too dumb to ask. You’d likely get a regulator just as broken as the one you were trying to replace. Once I started discussing the importance of intact gear teeth in my auction listings the prices in everyone’s closings readjusted. This is information getting priced in. You can tell bidders and they’ll bid appropriately. You can hide it from bidders and they’ll bid appropriately.
In stocks l used to foolishly screen using discounted cashflow to find bargains when my PV would fall below market. What I learned, the hard way, was that every other idiot with an MBA knows how to do this and has done it for their boss and distributed the answer all over and made the info worthless. Priced in. The problem is when the PV comes in low because something is wrong with the future earnings and only a few actually know.
In closing I always like the words of Forbes columnist Ken Fisher “you need to know something other people don’t know”. This is one of his one of three things that matter in a trade.
ETA - since we like to discuss love relationships here I’ll mention this priced in effect is alive and well there. How many times have you naively encountered a new group and seen the attractive member that nobody seems to commit to? What’s wrong with her? What’s wrong with him? Something is priced in. Domestic abuser, heartbreaker, substance abuse. Psychological problems. The market knows.
Re: What is priced in? How does one learn to figure this out?
The second part of your question is basically how to find hidden value.
My answer to that is become an expert or monetize an already existing expertise.
I like to tinker on 1980s Mercedes cars. After a few years of fixing I know what breaks, why, when and how to repair. This info isn’t always widely distributed. I can leverage this into trading by flipping and refurbing junkyard parts. Eventually the market figures it out. For instance if I don’t go to the junkyard on the first day of a new arrival alert the car is picked clean - especially of window regulators.
Do your own research. You likely have know some things others don’t know. Try to think of how to trade on this info. So much of the world works this way.
I look back on my most successful stock trades. They’re in auto parts distributors, tech, industrials. Things I’ve learned the ins and out of. All along I sit around asking myself “how can I make money off of this?”
A funny example was pirating sat TV back in the aughts. I loved tinkering with LNBs and TMS320 based sat tv codecs so I could rip off Dish. Eventually they slammed the door quietly on the hacker community and their subscription rate soared. They hid the piracy issue from the shareholders for years because it was just so bad. I remember driving to my favorite dive restaurant in East LA one afternoon and checking out all the DIY Dish installs on the rooftops. 100% pirate. One day they shut it all down. They even ran ads only receivable by the pirate HW “where is your dish? Don’t worry you can get it back for the low introductory price of $19.99. You’re not in trouble and we value you as a customer.” Subs soared over the next two quarters. And I was right there with my trade waiting for it. It was huge but the CEO played it down for selfish reasons. “We’ve made some minor tweaks in our ongoing piracy issue.” Nerds got jailed over this. It was huge in the hacker community. Basically Dish offered a multimillion dollar deal or jail to the lead hacker and he betrayed everyone else. He not only turned in his nerd friends he told the chip manufacturer how to bury the encryption HW so deep in their microchip that only a state funded intelligence agency could dig it out. An entire set top box industry collapsed overnight. Knowing something that other people don’t know isn’t reading it on Bloomberg. You need to really find out something.
There were a bunch of short junkies who dig in trash cans. There’s people counting cars in parking lots. There’s people who read job reqs and count listing statistics. Companies lie all the time but they will tell the truth if they are looking for a particular kind of candidate. It tells you a lot of what they’re tooling up for. Speaking of that I go to a lot of trade shows and ask what is moving. Who is buying it. That tells you a lot. About the vendors the clients the commodities. Cocky sales guys are always quick to tell you why they’re kicking the competition’s ass. You just have to shine them on and they start bragging.
A few years ago I was seeing Bitcoin mining operations getting disassembled. Guess what got auctioned off first on their mining rigs? There was a trade in there. You just had to know what you were looking at.
I know it sounds a lot harder than reading “what should I do with $10,000” in WSJ. Yeah. That’s why most people suck at this game. They use priced in information because they’re dumb and lazy. They eventually pay up in one way or another. The less you know the more you gamble.
On a positive note opportunities knock all the time in this big society of ours. Deals are flying by every day. I just need to reach up every now and then and grab one.
My answer to that is become an expert or monetize an already existing expertise.
I like to tinker on 1980s Mercedes cars. After a few years of fixing I know what breaks, why, when and how to repair. This info isn’t always widely distributed. I can leverage this into trading by flipping and refurbing junkyard parts. Eventually the market figures it out. For instance if I don’t go to the junkyard on the first day of a new arrival alert the car is picked clean - especially of window regulators.
Do your own research. You likely have know some things others don’t know. Try to think of how to trade on this info. So much of the world works this way.
I look back on my most successful stock trades. They’re in auto parts distributors, tech, industrials. Things I’ve learned the ins and out of. All along I sit around asking myself “how can I make money off of this?”
A funny example was pirating sat TV back in the aughts. I loved tinkering with LNBs and TMS320 based sat tv codecs so I could rip off Dish. Eventually they slammed the door quietly on the hacker community and their subscription rate soared. They hid the piracy issue from the shareholders for years because it was just so bad. I remember driving to my favorite dive restaurant in East LA one afternoon and checking out all the DIY Dish installs on the rooftops. 100% pirate. One day they shut it all down. They even ran ads only receivable by the pirate HW “where is your dish? Don’t worry you can get it back for the low introductory price of $19.99. You’re not in trouble and we value you as a customer.” Subs soared over the next two quarters. And I was right there with my trade waiting for it. It was huge but the CEO played it down for selfish reasons. “We’ve made some minor tweaks in our ongoing piracy issue.” Nerds got jailed over this. It was huge in the hacker community. Basically Dish offered a multimillion dollar deal or jail to the lead hacker and he betrayed everyone else. He not only turned in his nerd friends he told the chip manufacturer how to bury the encryption HW so deep in their microchip that only a state funded intelligence agency could dig it out. An entire set top box industry collapsed overnight. Knowing something that other people don’t know isn’t reading it on Bloomberg. You need to really find out something.
There were a bunch of short junkies who dig in trash cans. There’s people counting cars in parking lots. There’s people who read job reqs and count listing statistics. Companies lie all the time but they will tell the truth if they are looking for a particular kind of candidate. It tells you a lot of what they’re tooling up for. Speaking of that I go to a lot of trade shows and ask what is moving. Who is buying it. That tells you a lot. About the vendors the clients the commodities. Cocky sales guys are always quick to tell you why they’re kicking the competition’s ass. You just have to shine them on and they start bragging.
A few years ago I was seeing Bitcoin mining operations getting disassembled. Guess what got auctioned off first on their mining rigs? There was a trade in there. You just had to know what you were looking at.
I know it sounds a lot harder than reading “what should I do with $10,000” in WSJ. Yeah. That’s why most people suck at this game. They use priced in information because they’re dumb and lazy. They eventually pay up in one way or another. The less you know the more you gamble.
On a positive note opportunities knock all the time in this big society of ours. Deals are flying by every day. I just need to reach up every now and then and grab one.