> Markets are a value ascribing heuristic machine. There is nothing about them that can deterministically point to objective value. However, the idea is that over a longer period of time, an approximation of true value emerges though wisdom of the crowd.

It's a beautiful idea in principle. Ultimately the reality that emerges will reflect the underlying values of the society.

Really makes you wonder about our values, given that presently emerging realities include an increasingly inhospitable homeworld.

I would say it's more than a hope. Any trader whose strategy is closer to optimal will have larger profits over time and come to own a larger and larger fraction of the market. Though saying that out loud makes me realize optimal doesn't have to mean buying and selling according to true value. Optimal would in fact be predicting the behavior of other participants and trading off those predictions. I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock.

"It is not a case of choosing those [faces] that, to the best of one's judgment, are really the prettiest, nor even those that average opinion genuinely thinks the prettiest. We have reached the third degree where we devote our intelligences to anticipating what average opinion expects the average opinion to be. And there are some, I believe, who practice the fourth, fifth and higher degrees." Keynes, 1936.

> I still think certain events ground value though: bankruptcies, mergers, and dividends attach a real cost/gain to holding a stock.

Those things are themselves the product of the market price, it's not a one way street. This is what Soros' reflexivity is about.

But what if retail investors start to make up a larger % of investors? Then the dominant philosophy is hype, popularity and trying to sell to a greater fool. This is already happening: retail investors are growing in number.

Originally, when institutions were the major players, stock prices followed fundamentals because most ppl cared about the revenue, earnings and cash flow. But what happens when the demographics change?

How confident are you that they followed fundamentals in any original setting? "Fundamentals" is just a collection of metrics and patterns a certain class of investor believes in. Usually those with most money and thus, power.

I think you have a rosier view of what drives most of our markets than what happens in reality. Look at the dot com bubbles. Look at how HFT firms make money by exploiting the tiniest of pricing discrepancies and leveraging them heavily. Or perhaps "analyst reports" that can make or break a stock because one person believes something and we give them a megaphone. We switched focuse from present earnings to forward looking revenue. We have stock buybacks. We applied large multiples to financially unsustainable businesses because "maybe one day they can monetize these millions of users with Ads". etc. etc.

The GFC was a game of trying to sell to the greater fool and involved intentional manipulation at the highest levels. It seems the system has been has always had these holes and it was "ok" until regular folks began to identify and act on these opportunities.

We likely wouldn't be having this conversation if another large hedge fund was making the play retail investors are today. We'd read articles talking about the public battle of the billions.

Reminds me of anytime a govt entity creates & exploits a backdoor and is surprised when other actors use the same door for their own activities.

No rosy view - hedge funds and algos follow momentum and copy each other as well. I actually agree with some of your points but was questioning OP. Sometimes I ask questions and present a counter-argument to understand another viewpoint better, not because it’s what I believe in.

"In the short run, the market is a voting machine but in the long run, it is a weighing machine" attributed to Benjamin Graham