"The Riff" with Byrne Hobart and Erik Torenberg
E17: How Quants See the World
Feb 29, 2024
Byrne and Erik discuss company valuations, short selling, market predictions, earnings guidance, and the behavior of companies and investors in financial markets. They also touch on topics such as risk in investment, gold and Bitcoin, buybacks vs. dividends, and the dynamics of short selling in the stock market.
01:01:36
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Quick takeaways
- Market mispricing can occur due to overreactions to news or unnoticed changes in companies, leading to discrepancies in stock prices.
- Investors assess risks based on mispricings caused by market reactions, company changes, and risk tolerance to make profitable decisions.
Deep dives
Understanding Mispricing in Public Companies
Public companies can be mispriced due to market reactions that overshoot, such as over-extrapolating good or bad news. Another reason for mispricing can be when something changes about the company that the market doesn't pick up on, creating a drift between the company's value and stock price. Additionally, companies transitioning from great to merely good may still be treated as great by the stock market, leading to a discrepancy between actual value and perceived value.
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