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| | ==Explanation== | | ==Explanation== |
| | + | {{incomplete|Created by a CAMPING ROOMBA. Please mention here why this explanation isn't complete. Do NOT delete this tag too soon.}} |
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| − | In simplest terms, the stock market is a system by which private investors (including individual) can invest in companies by purchasing shares of stock, which can pay dividends, based on the company's net profits, and which rise in value if a company is doing well or is expected to do well in the future. Like many laymen, [[Cueball]] apparently understands the concept of the stock market, but is mystified by the complex strategies and vehicles for investment. He asks [[Ponytail]] if he can just "open up a website, and a pick a company you like." In fact, in modern times, it's quite easy for individuals to set up online brokerage accounts with relatively small investments, and buy any available stocks they like.
| + | Cueball and Ponytail are discussing the stock market. Ponytail explains that there has been no reliable way to pick stocks that perform the market average. She also states that there could be a corollary to that; there is no way to consistently pick bad stocks (presumably for this discussion, ''bad stocks'' refers to stocks whose value is expected to go down). |
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| − | Ponytail then adds that there's a lot of evidence suggesting that no investment strategy consistently outperforms the market. This is significant, because there's an entire industry of "fund management", in which (often highly paid) financial experts determine how clients' money should be invested. The notion is that such managers, being particularly educated and informed on both general economic conditions and the state of specific companies, should be able to select companies that are more likely to do well and avoid those which will do poorly. However, history shows that stock markets in most advance economies tend to rise over time, which means that most stocks are more likely to go up in value, rather than down. Simply choosing more stocks that go up in value than down is relatively trivial, in order to be valuable, a fund needs to "beat the market", meaning that it appreciates in value more than the entire body of stocks do.
| + | Cueball states that he could consistently pick bad stocks, and the last panel shows him at a trading terminal purportedly buying bad stocks, while White Hat and Meghan use his bad stock picks as indications that those stocks should be removed from whatever stock index they manage. |
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| − | As Ponytail points out, however, there is little evidence that these funds provide much value in the long term. Many studies, such as the long-running "[https://papers.ssrn.com/sol3/papers.cfm?abstract_id=670404 Investment Dartboard Contest]" run by ''{{w|The Wall Street Journal}}'', have found that an index of stocks that represent the total market is likely to produce returns just as favorable as an expert. This means a large enough set of randomly-selected stocks (often colloquially stated as "picked by a monkey") is likely to do the same, as it's likely to represent the entire market. The reasons for this are much debated. A lot of the value of stocks is based on perception and speculation about the future, and so exhibits a great deal of unpredictable and quasi-random behavior. And any objective information about a company's health tends to shift the prices very quickly, so the typical investor can't really take advantage of those. While a fund might have periods of significantly market-beating performance, those are generally balanced out by periods of bad luck.
| + | Realistically, in investing, someone who purposely trades in ''bad stocks'' is called a '''short seller''', and someone who could consistently pick ''bad stock'' could make a lot of money in the stock market. Short selling consists of selling a stock before you own it, with the anticipation that the stock's price will drop soon, you can later purchase the stock to fulfill the sale, and the difference between the selling price and the purchase price is your profit. However, in US stock markets, it is illegal to sell stocks that you don't own, so when you short a stock, you need to borrow that stock from a third party (possibly the trading firm you're working with, or some other firm that the trading firm has a stock loan relationship with) to cover the sale. Between the time you sell the stock until the time you repurchase the stock on the open market, you will have what's called a '''short position''' on the stock, and you need to pay interest to the company that lent you that stock. Because of the interest payments, short sales are almost always short-term positions, as the interest rates can quickly exceed any profit you might make on the sale. |
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| − | Ponytail then points out an interesting corollary. If movements of the stock market are effectively random, then it's just as hard to consistently ''lose'' money by investing as it is to consistently gain money. The reason is that consistently losing money would require a person to be able to consistently identify stocks that are likely to decline in value. The ability to do that would be very valuable, because the more bad stocks you can remove from your portfolio, the higher percentage of good stocks you'll have left.
| + | If Cueball's statement that a company is developing a "camping {{w|Roomba}}" is correctly attributing the trademark (as opposed to genericizing it to refer to any small cleaning robot), then presumably company #1434 is {{w|iRobot}}. While a Roomba for camping may sound like a ridiculous concept that is not likely to make much money, developing a robot that can navigate and move around natural environments would be a major advancement leading to new opportunities for both their civilian and military product lines. A campground offers a more challenging environment than indoors, while being slightly more controlled than a truly wild area, making for a good development step. Dropping iRobot from this company's index is probably not a move that would be suggested by a stock broker who is earnestly trying to make money, but maybe Cueball's "market anti-sense" knows something that we don't. |
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| − | Cueball's immediate response is that he's sure can pick money-losing stocks. The final panel suggests that he's teamed up with [[Megan]] and [[White Hat]] to do exactly that, selecting stocks based on absurd reasons, while the others watch from a distance, and cull his suggested stocks from their portfolio, rather than investing in them.
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| − | In real life, this strategy would be unlikely to work, for the exact reasons Ponytail laid out: the trends of individual stocks are too complex and random to predict, so good or bad decision making won't consistently stray from market returns.
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| − | In this example, the disturbing news about these companies (such as their CEO exhibiting erratic behavior, or developing an apparently useless product) is already public, and will presumably have been "priced in" to the market. This means that the stock price will have already dropped as much as it's expected to by most investors. At the same time, individual pieces of bad news don't necessarily mean the company will fail. If the CEO's eccentricities start to impact earnings, they'll probably be replaced. An ill-conceived product may indicate poor management, or it may be a one-off, and other product lines can keep the company profitable. As a result, dropping such companies after bad news, when the stock price is likely to be low, is unlikely to be a winning strategy.
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| − | In the title-text, another reason why it's difficult to pick bad stocks is highlighted. Due to a big investment (very possibly, Cueball's investment), the company in question has gotten a lot of attention and a spike in pre-orders. This emphasizes the unpredictability of the markets. People often invest (and even order) based on perception as much as on actual value, and so a company that might seem in trouble might see its fortunes turn around quickly. Because such things are so difficult to predict, beating the market is nearly impossible over time.
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| | ==Transcript== | | ==Transcript== |
| | + | {{incomplete transcript|Do NOT delete this tag too soon.}} |
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| | [Cueball and Ponytail are walking together.] | | [Cueball and Ponytail are walking together.] |
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| | :Cueball: What ''is'' investing? Do you just open a website and pick the companies you like? | | :Cueball: What ''is'' investing? Do you just open a website and pick the companies you like? |
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| − | [Cueball and Ponytail are still walking; Ponytail is holding out her hand palm-up.] | + | [Ponytail holds out her hand palm-up.] |
| | :Ponytail: Well, you totally can. | | :Ponytail: Well, you totally can. |
| | :Ponytail: But there's a lot of evidence that no investing strategy consistently picks stocks that outperform the average of the whole market. A lot of fund management is a myth. | | :Ponytail: But there's a lot of evidence that no investing strategy consistently picks stocks that outperform the average of the whole market. A lot of fund management is a myth. |
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| | [Close-up on Ponytail, who has turned to Cueball.] | | [Close-up on Ponytail, who has turned to Cueball.] |
| − | :Cueball (off-screen): Huh, okay. | + | :Cueball: Huh, okay. |
| | :Ponytail: But there's a weird corollary to that idea: it implies that, ignoring fees and stuff, it's just as hard to consistently ''lose'' money by picking ''bad'' stocks from an index. | | :Ponytail: But there's a weird corollary to that idea: it implies that, ignoring fees and stuff, it's just as hard to consistently ''lose'' money by picking ''bad'' stocks from an index. |
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| | :Ponytail: In a way, bad judgement is just as helpful as good judgement. | | :Ponytail: In a way, bad judgement is just as helpful as good judgement. |
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| − | [In a frameless panel, Cueball and Ponytail are standing facing each other; Cueball is raising his hands.] | + | [Cueball pumps his fists with excitement.] |
| | :Cueball: Oh my God. | | :Cueball: Oh my God. |
| | :Cueball: I can do that! | | :Cueball: I can do that! |
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| | {{comic discussion}} | | {{comic discussion}} |
| − | [[Category:Comics featuring Cueball]]
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| − | [[Category:Comics featuring Ponytail]]
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| − | [[Category:Comics featuring Megan]]
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| − | [[Category:Comics featuring White Hat]]
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| − | [[Category:Roomba]]
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| − | [[Category:Stock Market]]
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