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Short selling and intrinsic value

Cullen: "But when the value of those assets become wildly volatile and detached from their intrinsic value then we have a problem"

Well, now you've stepped in it. How do you measure intrinsic value? And what do you measure it in? US dollars?

Money is a social construct, not a "real" thing. It has value only as long as enough people agree it has value. Intrinsic implies something essential and for humans that would include air, food, and water, and shelter (and some level of social interaction because we are social animals). Socially constructed things, e.g., made up things like stocks have no intrinsic value, only the socially assigned value of a group of poeple.

Is Telsa intrinsically worth more than all other car companies in the world combined when it can only eek out a small profit? Should Tesla have a market cap of $750 billion? Tesla will need a 1000-year reich to return that valuation to investors.

Markets don't have to make sense because it is all a social illusion, like money. As /r/wallstreetbets says, we can stay retarded longer than you can stay solvent. Ha!


In finance, intrinsic value refers to a manner of valuing something to understand its relative value. For stocks that typically means something like a DCF calc or a PE ratio, etc.

Now, you could argue that GME was trading below its intrinsic value before all of this. But there's almost no convincing argument that GME should trade at its current value when compared with virtually any other firm. I mean, would you spend $20B on a brick and mortar video game co that's losing money and whose $6B revenues have fallen by 30% in 4 years? From a pure business perspective, you're talking about an insanely expensive company.

Granted, we don't know what it's worth and you could argue that something is worth whatever someone will pay for it. But on a relative basis, there's not a very convincing argument for current values....

My guess is GME will collapse in the coming months or year when this charade passes and a lot of people will get hurt along the way.

Lars Svensen and Keith Winston have reacted to this post.
Lars SvensenKeith Winston

Cullen, nice call on GME. I wish you did more individual stock analysis here.

I agree with Keith about Tesla. It seems like a similar story to GME. There is almost no fundamental rationale for TSLA's current valuation unless you believe they're going to merge with SpaceX and become some sort of space exploration company. I guess you never know, but it does seem like the valuation is inexplicable in the near-term.

Yeah, I can't disagree on TSLA. It seems like it would take a colossal business change to grow into this multiple. And that assumes that none of the other car makers are able to narrow the gap. Very hard to get around those numbers. It's a little different than GME though. TSLA is a tech stock with some unusual growth and merger options. GME is a basically a potential REIT that sells video games. Who wants to own that going forward, especially at a 10-25B valuation?