No Free Lunch: Value of Information
I decided to review my Q3 not on the trading itself, but on my thoughts in the past 3 months. Whoever started as a newbie, you will see there is no end to the number of blogs and Youtube videos that convince retail investors they too can be experts. But what, really, is the value of that information? From my experience, there are three reasons earnings-based analyses are so popular in the investing world, even among some quasi-professionals, despite the fact that Discounted Cash Flow analysis is the preferred model for valuation across the entire industry:
1. Earnings is the most readily available company metric on the internet.
2. Ratios are simple; analyses are complicated.
3. This information is cheap.
Beyond Time Value of Money, there's no more valuable information you're going to get from browsing the internet for free. You can get access to certain types of research reports from Schwab and other discount brokerages, but it's not "free". You've deposited money with and given order flow to these institutions, on which they in turn generate income. But this is still relatively low value information compared to real, thorough equity research (it's often called "Due Diligence" here). These reports cost money, and they're compiled by people with years of education and expertise, which in turn cost money.
1. Earnings is the most readily available company metric on the internet.
2. Ratios are simple; analyses are complicated.
3. This information is cheap.
Beyond Time Value of Money, there's no more valuable information you're going to get from browsing the internet for free. You can get access to certain types of research reports from Schwab and other discount brokerages, but it's not "free". You've deposited money with and given order flow to these institutions, on which they in turn generate income. But this is still relatively low value information compared to real, thorough equity research (it's often called "Due Diligence" here). These reports cost money, and they're compiled by people with years of education and expertise, which in turn cost money.
Very little of what analysts know in practice is something that can be distilled to the average investor without all of the years of underlying context. Expecting you to digest this and beat the market would be like telling you to take a 5xxx or 7xxx level finance course and expecting you to place in the top 5% of the class, at a top 5% school.
So this is what really goes into business valuation exercises of any real worth. Which is another way of saying: If you didn't pay for it, chances are it's not that valuable.
$Apple (AAPL.US)$ $Amazon (AMZN.US)$ $Meta Platforms (FB.US)$ $AMC Entertainment (AMC.US)$ $Alibaba Group Holding (05843.HK)$ $Tesla (TSLA.US)$
$Apple (AAPL.US)$ $Amazon (AMZN.US)$ $Meta Platforms (FB.US)$ $AMC Entertainment (AMC.US)$ $Alibaba Group Holding (05843.HK)$ $Tesla (TSLA.US)$
Disclaimer: Community is offered by Moomoo Technologies Inc. and is for educational purposes only.
Read more
Comment
Sign in to post a comment
Jgerich : Nice read
gas 1126 : Very valuable post, thank you for sharing,In this era, valuable information needs money to exchange
iceswimmer OP gas 1126 : Exactly, I think moomoo might be an exception though, coz it created such a good community for us to share information freely
gas 1126 iceswimmer OP : Agree with you. Since I used moomoo as my trading software, I feel everything is happy