it works like this: Imagine you have a huge amount of money, enough to buy whole companies like Apple, Coca Cola and Walmart. you want to keep your money and even make it grow, so you're looking for good businesses to buy.

I have one company for sale at USD329 billions, it grows 50%-100% a year for now and currently generates USD3.29 billions

I have another company for sale at USD219 billions, it is shrinking at 1.4% a year and currently generates USD14.69 billions

And finally I have another company for sale at USD200 billions, it is growing/shrinking between -8% and 60% a year and generates USD7.35B

Most people prefer the second one, who makes you a good 7% return a year. the first one looks good, but will take at least 6 years to be as good as the second and the last one is so so. the companies where 1) Facebook 2) Walmart and 3) Coca cola. (we're ignoring how much assets and liabilities they have for simplicity)

And as you see, even when facebook has a promising future, we don't know if it will reach a good value/margin level as walmart. so we may agree it's overvalued at is current price.

Hope this shed some light, I'm not a trader or something, so this info is very simplistic

P.D.: this analysis is called Fundamental Analysis, you can go deeper and honestly it has worked very well in my portafolio. I bought stock in Gerdau (GGB), a brazilian steel company, because I studied as a whole business and discover it was priced very low. that was starting in November, I bought those stocks at 1.22 and recently they reached 2.44. I basically duplicated my money in 6 months. Remember stocks aren't just tickets, they are little parts of a big business.

That's very interesting, thank you for posting this!

sure, man. glad it helped you.

In one sense yes — if the sum total of the market is '1' and everyone is just some fraction of that. Then there can only ever be relative price changes.

But the sum of all prices does in fact vary. I'm sure you're familiar with Tulip Mania. Prices can be bid ever-higher in a cycle, and they can also decline in tandem as in the depression.

For the entire market to have an expanding total price, new money has to be entering the market, or the net real value of the underlying financial assets has to be declining. Either way, the entire market can become overvalued or undervalued, especially compared to non-financial (or illiquid) assets denominated in the same currency — e.g., wages, energy, or land.

> How can the whole market be overvalued? Prices are relative, no?

Only if you subscribe to the "Greater Fool" theory[0]. On the other hand, if you think the stock price should reflect some sort of intrinsic value, say the net present value of the stream of all future dividends, then it could be the case that you would never recoup your investment with any stock currently.

[0] https://en.wikipedia.org/wiki/Greater_fool_theory

Short answer: No. E.g. if you buy 'shares' in an index (via an ETF), you're effectively buying a weighted basket of the component shares in the index. If the individual shares are overpriced then so is the index as a whole. Hence the S&P500 has a price:earnings ratio, and you can decide for yourself if that ratio is looking 'toppy'.

This is effectively a claim that the dollar is being undervalued.

Quite a few people would disagree.