Re: investing...throwing darts.... - Saab General Bulletin Board - Saabnet.com
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Re: investing...throwing darts....
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Posted by Reality (more from Reality) on Fri, 13 Jan 2012 09:43:27 Share Post by Email
In Reply to: Re: investing...throwing darts...., davidgmills, Fri, 13 Jan 2012 08:33:46
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Stocks are not even close to being a good proxy for the industry/commodity in question. Photography industry flourished in the past decade, and yet Kodak is almost gone; likewise, the computer industry achieved ever greater penetration in our lives, yet how has HP done? Neither Kodak nor HP were fraudulent companies. Even for XOM vs. oil price, 2x vs. 10x are huge differences.

That oil has industrial use value is the reason why it is more volatile in a volatile economy, both up and down, than a monetary commodity like gold. Silver is somewhere in between the two. Price/value is subjectively determined by supply and demand of a specific quantity of the commodity. All the air in the world is much more crucial to human survival than all the gold in the world is, yet who would want to exchange an ounce of the latter for 1 cu.ft. of air? The value of an abstract concept like "all air in the world" or "all oil in the world" is irrelevant; as an economic actor, one can only trade finite barrels of oil at a time, and the price of those barrels of oil would be severely jeopardized when something cheaper to burn is discovered (including new oil or natural gas discoveries, or simply someone else wants to burn less than they used to).

Value is subjective, and is ever changing . . . it has to be discovered by free market exchanges on a moment by moment basis in order to achieve a relatively high level of efficiency in resource allocation. To say that a specific oil company would always outperform the market is like saying the government should tax everyone else to invest in that industry; that theory is no more valid than the past theories about stocks will always go up, real estate prices will always go up or higher education (at the expense of everything else, as that's what tax to support means) is always a good thing. Real life does not offer such permanency. Every industry has its point of diminishing return. Change is what makes life interesting :-)





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