The hottest Market Theory Substack posts right now

And their main takeaways

Stop blaming rising egg prices on market power

Economic Forces • 11 implied HN points • 20 Feb 25

Rising egg prices don't always mean companies are taking advantage of their market power. Sometimes, they can be explained by supply issues, like avian flu affecting chicken populations.
When there are fewer eggs available due to supply disruptions, prices can rise a lot even if demand doesn’t change much. This is because people still need eggs for cooking and baking.
Just because prices are high doesn't mean there’s unfair competition. It’s important to look at the whole supply chain and how supply changes can affect prices in a competitive market.

HOISTED FROM THE ARCHIVES: An Ur-Text by George Stigler for Dark Satanic Millian Liberalism, & Related Matters...

Brad DeLong's Grasping Reality • 76 implied HN points • 15 Dec 24

💼 Business Economics Market Theory Capitalism Economic History Liberalism

The market economy is seen not just for creating wealth, but for shaping character and virtues like self-discipline and resilience. This suggests that economic struggles can help people become better individuals.
Some economists argue that uncertainty and risk of poverty are necessary for a society to function well. They believe without these challenges, people might not push themselves to improve.
Critics of this perspective think that focusing on the hardships of capitalism ignores the real needs and experiences of everyday people. They see value in prosperity and security, not just in struggle and sacrifice.

An Appreciation of Joe Stiglitz

Something to Consider • 139 implied HN points • 03 Jul 24

💼 Business Economics Market Theory Statistical Analysis Public Policy

Markets work best when everyone has the same information, but that's rarely the case in reality. Stiglitz shows us how imperfect information affects economic decisions.
Share-cropping has its own risks and benefits. It allows landlords to provide safety nets for tenants, but it can also limit tenants' work incentives.
When companies pay higher wages, they can improve worker effort and reduce turnover. This is known as the efficiency wage theory, which explains why some businesses might choose to hire fewer employees at higher salaries.

People act. Markets clear. Everything else is commentary.

Economic Forces • 10 implied HN points • 23 Jan 25

💼 Business Economics Market Theory Consumer behavior Price theory

Economic models have two main parts: how people behave and how those behaviors interact in the market. Understanding both helps clarify how markets operate.
Equilibrium in economics doesn't mean everything is still. It's about finding a way to make individual choices work together, even in changing situations.
Critiques of economics often focus on rationality, but understanding the constraints, like budgets, is more important in predicting market outcomes.

Common Chicanery about Competition (from the archives)

Economic Forces • 6 implied HN points • 02 Jan 25

💼 Business Economics Competition Market Theory Supply and Demand Pricing

You don't need complete knowledge or information for competition to exist. All you need is an understanding of your own likes and the price of the goods.
Competition does not mean that companies make no profit. In fact, if prices are above costs, companies can still earn profits even in a competitive market.
You don't need an endless number of buyers and sellers to have competition. Even a few sellers can compete if their products are good substitutes for each other.

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Giving Thanks for Price Theory, 2024 Edition

Economic Forces • 5 implied HN points • 28 Nov 24

💼 Business Economics Market Theory Resource Allocation

Understanding opportunity costs is key. When making decisions, we need to consider not just the money spent, but also what we give up in terms of time and other choices.
Efficiency helps us analyze economic situations. It's not just about being the best, but about understanding how resources can be better allocated and identifying areas needing improvement.
Profits and losses guide resource allocation. They act like signals in the market, showing which businesses are successful and which aren’t, ultimately helping to improve overall economic efficiency.

The Market As A Superintelligence + 3 Reasons To Believe AGI Is Possible

The Future of Life • 19 implied HN points • 05 Jun 23

🕹 Technology Artificial Intelligence Market Theory Cognition Economics Innovation

The market acts like a superintelligence by combining the knowledge and skills of all participants. This creates a system that is more efficient than what any single person or organization could achieve.
There are signs that Artificial General Intelligence (AGI) could be possible, such as the ability to recreate simple behaviors in artificial neural networks. This suggests we could eventually model more complex human behaviors as well.
AI systems already show capabilities similar to human thinking in language and problem-solving. This means we might not need special biological processes to achieve human-like intelligence.

Buffett and Munger... Shock value!

Musings on Markets • 0 implied HN points • 02 May 09

💰 Finance Investing Market Theory Portfolio Management Financial Analysis Economic Trends Investing Market Theory Portfolio Management Investment strategy Financial Analysis

Warren Buffett and Charlie Munger often challenge common investing practices, suggesting that many popular ideas are overly complex and not sensible. They believe that simplicity and common sense should guide investment decisions.
Buffett argues against relying too much on complicated math in finance, indicating that it can lead to bad decisions. He feels that common sense should play a bigger role than high-level calculations.
Both Buffett and Munger highlight that innovative ideas in finance can face resistance, often taking time to be accepted. They suggest that the solution is to keep generating new ideas rather than giving up.

Alternatives to the CAPM: Part 4: Market-Implied cost of equity

Musings on Markets • 0 implied HN points • 30 Apr 11

💰 Finance Equity Investment Valuation Risk Models Investing Valuation Equity Risk management Market Theory

You can calculate the market-implied cost of equity using a simple dividend discount model, which helps you understand if a stock is fairly priced. This method allows you to figure out the expected return on a stock based on its price and future dividends.
Comparing the market-implied cost of equity to a conventional one can help you decide whether to invest in a stock. If the market-implied cost is much higher than your estimate, it might mean the stock is riskier or less attractive.
You can use the market-implied cost of equity for an entire sector so that you have a uniform measure for evaluating companies in that sector. This approach can make it easier to compare different companies without getting lost in individual risks.

Alternatives to the CAPM: Wrapping up

Musings on Markets • 0 implied HN points • 30 Apr 11

💰 Finance Investment Risk management Valuation Market Analysis Financial Models Investment Risk Valuation Methods Financial Analysis Market Theory Equity Research

Ignoring risk in investments is a big mistake. You need your own way to measure and manage risk because investments have different levels of risk.
Using numbers is important for valuing companies, but don't forget the stories behind them. The results in numbers should reflect the company's real situation.
Keep your methods simple. A straightforward approach, like CAPM, can be useful, and it's important to question and refine your risk assessment regularly.

Black, blue and white swans: Comments on Taleb

Musings on Markets • 0 implied HN points • 13 Oct 08

💰 Finance Risk management Investment strategy Market Theory Behavioral Finance Economic Models

It's important to realize that real-life data often doesn’t follow normal patterns and can have unexpected jumps and surprises.
While it's essential to be aware of unpredictable events (black swans), we shouldn't stop planning or forecasting our future.
We should use our best judgment to value assets, keeping in mind that shocks can occur, and we need to account for these risks.

Asset allocation for illiquid markets

Musings on Markets • 0 implied HN points • 24 Dec 10

💰 Finance Investing Asset management Market Theory Portfolio strategy Risk Assessment

Illiquidity affects all stocks, not just a few, which can lead to challenges in investment decisions. It's important to understand that even seemingly liquid markets can experience periods of illiquidity.
When deciding how to allocate assets, it's crucial to consider the potential underestimation of risks associated with illiquid assets. Ignoring this can result in poor investment choices.
Investors should tailor their asset allocation based on their need for liquidity. Those who prefer more liquidity might focus on large, stable assets, while others might benefit from investing in less liquid ones.

Culprit found for market crisis!!!!

Musings on Markets • 0 implied HN points • 07 Jun 09

💰 Finance Market Theory Financial Crisis Investing Strategies Risk management Economic Policy Market Theory Financial Crisis Regulation Investor behavior

The efficient market hypothesis claims that markets are generally accurate in pricing assets, meaning it’s tough for investors to consistently beat the market. Some people believe this idea is not entirely true.
There are criticisms of the notion that financial leaders fully trusted the efficient market hypothesis. Many academics recognized market inefficiencies long before the crisis and warned about issues like asset bubbles.
The idea that the financial crisis is largely due to the efficient market theory overlooks other factors. Issues like poor regulations, the creation of complex financial products, and incentive structures also played significant roles.