What does “the market already had it priced in” even mean?

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Carmen1409
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What does “the market already had it priced in” even mean?

Post by Carmen1409 » Thu Mar 26, 2020 10:36 pm

This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.

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FiveK
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Re: What does “the market already had it priced in” even mean?

Post by FiveK » Thu Mar 26, 2020 11:05 pm

You may be correct.

Another explanation to consider is that a surprising event may cause more of a market change than an event "known" to be coming well in advance.

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Re: What does “the market already had it priced in” even mean?

Post by mega317 » Thu Mar 26, 2020 11:13 pm

It means the people making the market have made their buy/sell decisions knowing what is to be known. If the news tomorrow is people are dying in New York because they ran out of ventilators, probably not much will change. It's horrible but everyone already knows that's going to happen. If the news tomorrow is surprisingly better or worse than expected, prices may shift. That's oversimplified and not necessarily rational. But that's what it means.
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Re: What does “the market already had it priced in” even mean?

Post by jjface » Thu Mar 26, 2020 11:20 pm

Take this week - unemployment report 3m+ Market went up. Bad news already expected earlier and priced in so no negative movement when released.

It basically means that what the market expects is priced in based on all available info. Sometimes expectations are wrong which causes movement in the markets. Or something unexpected comes along that shakes the markets.
Last edited by jjface on Thu Mar 26, 2020 11:23 pm, edited 1 time in total.

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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Thu Mar 26, 2020 11:20 pm

I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.

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Re: What does “the market already had it priced in” even mean?

Post by typical.investor » Thu Mar 26, 2020 11:22 pm

Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what?
Priced based on all available information.
Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways.
The market is the sum of the views of investors. Of course, the sum views of investors can be too optimistic or too pessimistic. We know that.
Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
It’s not based on any science, mathematical formulas, or algorithms.
Well, if you and I were the only investors and had the same perfect information, we still may interpret it differently. You probably are more worried about the economy than me, and would perhaps invest accordingly. Likely we'd both be wrong, and likely the sum of our decisions would be wrong. Still, the sum of our decisions would be the best guess based on what's known. And when more information became available, we'd adjust our views which again would probably be wrong. But they'd be the best we could do.

If you figure out a formula to predict the future, PM me please before you tell anyone else. I have an idea on how we could use it to our advantage.

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Re: What does “the market already had it priced in” even mean?

Post by Afty » Thu Mar 26, 2020 11:31 pm

Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.
It’s essentially the efficient market hypothesis, which states that asset prices reflect all available information. So I don’t think it’s accurate to say it is not based on science, depending on whether or not you consider economics a real science.

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Re: What does “the market already had it priced in” even mean?

Post by Elysium » Thu Mar 26, 2020 11:39 pm

Pricing happens at the individual security level. Each security has a price based on all available information about it, some are more heavily analyzed than others. Most widely analyzed securities have all the known information priced in almost all the time so much that an individual investor armed with publicly known information is unable to get any pricing advantage to make an excess profit through mispricing. Typically, information is known and then immediately reflected in security pricing. You cannot get your trade in to make a profit.

These securities then collectively make up the market and the price on the market reflects the sum of all securities and all the known information about them. In addition to this, there are macro events that affect the pricing of all securities to some level across the board, but again this is not a uniform price across the board, depends on demand and supply for individual securities, the ones in more demand may hold up better prices, and the ones not in demand will fall more, so on..

Since people on this forum have forgotten mostly about individual securities and tend to speak always in reference to an index, they usually think of pricing as something that happens broadly at an index level. This is why the confusion. When you think of the market as having made up of thousands of individual securities, with each one of them followed by many analysts and prices in within seconds of available information, and the market being a sum of it, then you will understand this.

Essentially all that means is an individual investor is unlikely to have any extra information that the traders on the floor already knows is coming, and by the time you know, there is no time left for you to make any advantage out of it. It's not that you cannot know how information coming will affect the price, on the contrary you can, but there is no time available for you to make a profit from it before the pricing is set with that information. That's all we need to know about it. Because we do not have the trading floor or arbitrage opportunities, we simply have to accept the "market has priced that in". It's another way to accept that we are too small in the grand scheme of things.
Last edited by Elysium on Thu Mar 26, 2020 11:45 pm, edited 1 time in total.

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Re: What does “the market already had it priced in” even mean?

Post by Randolph Mortimer » Thu Mar 26, 2020 11:42 pm

Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
Smug and wrong. Bravo

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Re: What does “the market already had it priced in” even mean?

Post by Elysium » Thu Mar 26, 2020 11:45 pm

Randolph Mortimer wrote:
Thu Mar 26, 2020 11:42 pm
Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
Smug and wrong. Bravo
Probably because not understanding, give them a chance :P

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Re: What does “the market already had it priced in” even mean?

Post by justsomeguy2018 » Thu Mar 26, 2020 11:55 pm

Is EFH flawed in the sense that market distortions can happen due to the actions of heavy weighted individuals (ex. say Buffet owns 80% of some stock and takes some action with it, isn't the "pricing in" at that point determined primarily by the "all available information" of a single individual?)

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Re: What does “the market already had it priced in” even mean?

Post by Randolph Mortimer » Thu Mar 26, 2020 11:57 pm

Elysium wrote:
Thu Mar 26, 2020 11:45 pm
Randolph Mortimer wrote:
Thu Mar 26, 2020 11:42 pm
Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
Smug and wrong. Bravo
Probably because not understanding, give them a chance :P
Nah, someone with that many posts in under a year and still makes a statement like that is someone who obviously isn't doing much listening or trying to understand. I think I was fair :sharebeer

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Re: What does “the market already had it priced in” even mean?

Post by JustinR » Fri Mar 27, 2020 12:05 am

Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.
To me it means that the price is based on all known and predicted information.

For example, we expect that 6 months from now Google could do A, B, or C. All three ideas are priced in.

But sometimes D, E, and F happens, things that were not predicted or information that wasn't available, and the price changes accordingly to price that in.

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Re: What does “the market already had it priced in” even mean?

Post by watchnerd » Fri Mar 27, 2020 12:33 am

Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
It certainly didn't originate with buy and hold index investors, so I don't know why your linking it to Bogle-anything.

It's a common 'term of art' in financial journalism.
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Re: What does “the market already had it priced in” even mean?

Post by watchnerd » Fri Mar 27, 2020 12:39 am

Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.
It gets thrown around in a lot of BS ways.

But there are real world examples that are more concrete, when it comes to earnings forecasts.

For example, I could publicly forecast that I expect my earnings to grow by 10% next quarter, and my earnings per share to be between $1.50 and $1.60. My stock price then moves to adjust to the market's valuation based on that info. So that earnings forecast is now "priced in" to the price.

If my earnings then come in within that range, I shouldn't expect a big shift in the stock price (in isolation), as it's already priced in.

But if I come in higher or lower, that's new information, and it won't be priced in. The stock price should then be expected to shift accordingly.
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Re: What does “the market already had it priced in” even mean?

Post by rbaldini » Fri Mar 27, 2020 9:15 am

The SP 500 is at 2552 right now. Let's say that, somehow, everyone got it in their heads that the price of the SP 500 is going to drop to 2300 by tomorrow. What would happen? The price would almost immediately drop to 2300. Why? Because everyone "knows" they can avoid a loss by selling now and buying after the drop has already occurred. Since everyone wants to sell, supply exceeds demand, and the price falls. It wouldn't drop any further than that, because if it went below 2300, everyone would know they could make a profit by buying now and selling tomorrow morning. Demand would exceed supply, and it would rise back to 2300. So, this market knowledge gets reflected in the price very quickly. The drop happens probably within a few minutes, rather than gradually over the day. A forecast about "tomorrow" was realized almost instantaneously - which means, suddenly no one knows what will actually happen tomorrow. All known information is already priced in, so any leftover movement must necessarily be hard to predict - like a random walk...

This is a contrived example but hopefully that gives you the idea.
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Re: What does “the market already had it priced in” even mean?

Post by bugleheadd » Fri Mar 27, 2020 9:19 am

Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
i doubt the term was invented here. its probably been around for as long as stock markets existed. i would imagine the term is more used by day traders who need to figure out minute by minute what news has been "priced" i nor not
Last edited by bugleheadd on Fri Mar 27, 2020 9:20 am, edited 1 time in total.

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Re: What does “the market already had it priced in” even mean?

Post by columbia » Fri Mar 27, 2020 9:19 am

Whatever it’s intended to mean, one shouldn’t assume that it is or is not correct. When in doubt, I assume it’s not correct.
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Re: What does “the market already had it priced in” even mean?

Post by nisiprius » Fri Mar 27, 2020 9:40 am

To the extent that the future can be predicted, your predictions of the future affect the price you are willing to pay for something. If a piece of meat has a sell-by date that is a day off, you predict accurately that it is not going to be as fresh and tasty as one with a date that is several days away. You also predict that it won't keep in your refrigerator as long, so you shouldn't buy it unless you plan to cook it that day. In order to sell it, the supermarket puts a "manager's special" sticker on it and cuts the price. The future spoilage of the meat is "priced in."

In the case of a bond that is going to make its coupon payment on, say, July 15th, as the date approaches everybody knows with high accuracy that the payment will be made, so as the date approaches the market price rises even though the payment is still in the future. The actual market price, known as the "dirty price*," is a sawtooth curve. The known future interest payment is "priced in." The price rises to include the present value of the future interest payment. Then after the payment is made, it falls because that payment is no longer priced in.

In the case of stocks everything is far looser, subjective, and uncertain, but that doesn't make the idea useless or crazy. Certainly a lot of nonsense gets said, but in some cases there are identifiable known events. When it is known that the Fed open market committee is going to announce new interest rates, there is an instant contest wth the winner being the person who can be quickest and most accurate in guessing the amount. By the time the announcement has been made, the market has "priced it in, maybe accurately, maybe inaccurately. It's not meaningless to say "the market hasn't priced it in fully" as a way of saying "my prediction is different from the market's." It's not meaningless to say "no, the market has priced it in" as a way of saying "I think the market's prediction is right and yours is wrong."

*What I know about bonds is superficial book learning. I think the sawtooth curve = the actual market price = the "dirty price" and the smooth curve derived from using bond math is the "clean price" but if I've got it the wrong way around, consider yourself warned.
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Re: What does “the market already had it priced in” even mean?

Post by firebirdparts » Fri Mar 27, 2020 9:47 am

I already mentioned in another thread, the market hasn't priced in anything that becomes known this afternoon, and therefore, arguments about it are unimportant. I truly believe that.

It is true that the market is pretty (very) low friction and there is an army of people who do nothing but arbitrage stuff all day, so it really has priced everything the best it can. If you understand efficiency in that sense, then markets are amazingly efficient. Crazy efficient. However, they are also rigged. Don't forget that. There are moments where you could be watching the market do its efficient thing, and the treasury/fed snatches a financial product off the table. It's also fragile. There are times that a bunch of counterparties all collapse like a house of cards. This is how the "tulip bulb mania" ended. When it ended, the losers couldn't pay what they owed, so everybody just had a laugh about it and shared a beer.

My opinion is "priced in everything the best it can do" is not really future-knowing omnipotent. But that is just my opinion. Other people take the efficient market hypothesis way beyond what I would be prepared to believe. When times are normal, companies "guide" their earnings estimates and so there is a known prediction of earnings already out there when things are normal. As an index investor, you could be ignoring this, but it's there. Right now, of course, that information is no good. Usually it's pretty good. So then the price is set by science, mathematical formulas, and algorithms normally.

So ... when people mean "It’s not based on any science, mathematical formulas, or algorithms" then that's just a lazy person in my opinion. There are lots and lots and lots of lazy people. You should certainly expect them.
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Re: What does “the market already had it priced in” even mean?

Post by JackoC » Fri Mar 27, 2020 10:00 am

mega317 wrote:
Thu Mar 26, 2020 11:13 pm
It means the people making the market have made their buy/sell decisions knowing what is to be known. If the news tomorrow is people are dying in New York because they ran out of ventilators, probably not much will change. It's horrible but everyone already knows that's going to happen. If the news tomorrow is surprisingly better or worse than expected, prices may shift. That's oversimplified and not necessarily rational. But that's what it means.
Yeah. In times like these there are always posts setting up and knocking over the straw man that the market somehow knows what's going to happen in the future. But nobody reasonable ever said that. All 'priced in' means is that your odds of success are only random-ish* to make a guess on the market's future direction via a superior command of currently known facts compared to what's reflected in the market. 'But the market doesn't realize...' X/Y/Z disturbing or reassuring fact (or claim) I've read in an article or blog of somebody's web post... no, it probably does realize something like the most solid and accurate version of X/Y/Z as of today. But of course it doesn't somehow know future outcomes of this pandemic, or any other uncertain event (as when in the old days of lots of small Fed interest rate moves the fixed income market would often be poised about halfway between its subsequent reaction to a 25bp hike or not, because available information put the likelihood something like 50-50).

*oversimplified in terms of risk. It stands to reason in a situation like this risky asset prices have been discounted by more than the midpoint expectation of the impact of the virus on earnings: there's also more risk, and people hate downside more than they love upside as a rule, so expected return has probably gone up. That doesn't mean 'the market has overreacted' or 'is undervalued': risk and investors' reaction to it is also real.
Last edited by JackoC on Fri Mar 27, 2020 10:02 am, edited 1 time in total.

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Re: What does “the market already had it priced in” even mean?

Post by HomerJ » Fri Mar 27, 2020 10:01 am

Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.
It means, everyone already knows the news you know.

If you KNOW there are going to be millions of new unemployment claims on a certain day, that doesn't mean the market is going to drop on that day, because everyone already knows that, and has priced it in BEFORE that day arrives.

In fact, markets can rise on bad news, if they are LESS bad than expected.

Lots of times, a company will report low profits, or even a loss for the quarter, but the stock will GO UP, because everyone expected even worse results. If the market has priced your company at losing $300 million next quarter, and you only lose $100 million, then the stock goes up because it was already priced lower expecting the $300 million loss.

The market is forward looking.

Amateur investors keep posting, "How can the market go up in the next few weeks while this pandemic is still going on? The lockdowns will last at least 2-3 more weeks, so the market won't go up until 2-3 weeks from now."

But that's not how it works. If we're not sure if it's 2-3 weeks or 2-3 months, the market is uncertain, bouncing all over the place. As soon as it looks like 2-3 weeks is more likely, the market will rebound immediately. It won't wait until the 2-3 weeks are over. It will "price that in" right away.
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Re: What does “the market already had it priced in” even mean?

Post by MotoTrojan » Fri Mar 27, 2020 10:06 am

Lot of focus on the downside and crashes, but it applies in a normal growing market too. Amazon has a higher valuation than Best Buy because the market has "priced in" that Amazon as a company will grow more than Best Buy. That means that Amazon can continue to grow faster than Best Buy, but if it doesn't do as well compared to that priced in assumption, Best Buy's stock could in fact grow faster even as it's company (measured in earnings, sales, revenue, etc...) does not.

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Re: What does “the market already had it priced in” even mean?

Post by sperry8 » Fri Mar 27, 2020 10:11 am

mega317 wrote:
Thu Mar 26, 2020 11:13 pm
It means the people making the market have made their buy/sell decisions knowing what is to be known. If the news tomorrow is people are dying in New York because they ran out of ventilators, probably not much will change. It's horrible but everyone already knows that's going to happen. If the news tomorrow is surprisingly better or worse than expected, prices may shift. That's oversimplified and not necessarily rational. But that's what it means.
Exactly. It means of the millions of people in the market - by the time you or I read news about something, it's already known information and thus already priced into the market. It is the difference between reality and what actually occurs that is not priced in. So for example, if a cure for COVID-19 was found tomorrow, the market would blast higher. Why? That is not known information and not part of any expectations. It is an unknown and thus the reality is quite different than what is priced in. But unemployment hitting 3.3 million was already priced in and the announcement didn't move markets one bit. People (the market) expected this news weeks ago - and thus the market moved well in advance of the "news".
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Re: What does “the market already had it priced in” even mean?

Post by alex_686 » Fri Mar 27, 2020 10:27 am

Afty wrote:
Thu Mar 26, 2020 11:31 pm
Carmen1409 wrote:
Thu Mar 26, 2020 10:36 pm
This saying makes no sense to me. Priced in based on what? To me it’s just a way of saying we have no idea why the market is doing what it’s doing but the market is omnipotent so we must trust its mysterious ways. It’s not based on any science, mathematical formulas, or algorithms.
It’s essentially the efficient market hypothesis, which states that asset prices reflect all available information. So I don’t think it’s accurate to say it is not based on science, depending on whether or not you consider economics a real science.
To extend a bit, EMH states that all available information is priced in. It does not say that there is sufficient information to make that determination. For example, take a example where in a coin flip heads = 1 and tails = 0. The correct well calibrated price is $.50, and the actually result is vary between these values. There are many well calibrated models out there from investing to the weather which can kick out 2 very different results.

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Re: What does “the market already had it priced in” even mean?

Post by ValuationsMatter » Fri Mar 27, 2020 10:32 am

I don't understand why some people get upset about phrases or expressions. I was scolded for using this term a day or two ago. I think it's an excellent phrase that captures the essence of how markets are priced based on expectation.

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Re: What does “the market already had it priced in” even mean?

Post by firebirdparts » Fri Mar 27, 2020 10:46 am

ValuationsMatter wrote:
Fri Mar 27, 2020 10:32 am
I don't understand why some people get upset about phrases or expressions. I was scolded for using this term a day or two ago. I think it's an excellent phrase that captures the essence of how markets are priced based on expectation.
When you use platitudes, you can either be right or wrong because they may or may not apply to the subject at hand. A lot of times, people using platitudes don't understand the meaning nor the application. It's a common problem.

You will find numerous threads here where people started a new thread asking how two platitudes can both be "right" if they appear to contradict each other, and sometimes they'll even have a word or two out of place.

Anyway, the meaning is what matters.
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Re: What does “the market already had it priced in” even mean?

Post by chevca » Fri Mar 27, 2020 11:01 am

I think it's a very good saying. To me, it's saying the highly educated professionals and teams of professionals that do this for a living day in and day out (the ones that really move the money) have already looked at all there is available to know and decided what to do about it. Do you want to try and compete with them? I know I don't.

I've seen somewhere on BH, or reading somewhere, it be compared to someone that plays pick up basketball at the YMCA wondering if they should/could compete in the NBA.

The feeling I get from a lot of recent threads is that more people think they can play in the NBA during a crash. Why do they think they should have known or seen it coming all of a sudden, or know what to do about it?

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Re: What does “the market already had it priced in” even mean?

Post by David Jay » Fri Mar 27, 2020 11:24 am

HomerJ wrote:
Fri Mar 27, 2020 10:01 am
It means, everyone already knows the news you know.
Nice and succinct.

Humility is so essential in personal investing. Information asymmetry (the professionals on wall street with research departments and supercomputers) is real, I stand little chance of out-maneuvering the market.
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Re: What does “the market already had it priced in” even mean?

Post by deikel » Fri Mar 27, 2020 11:53 am

Maybe it helps you if you break it down a little bit (and there sure is lots of science behind it btw, this is economics 101):

If two people agree on a transaction of a good or service and come up with a mutually agreeable price, then that service or good has gotten a price, in that moment. And both parties go away happy, because one sold at a price that reflects what they think the value is and the other goes away happy because they buy at a price they thought was good value.

Many people doing the same thing at the same time and that's called 'the market'. The trickery lies in the value perception. The seller clearly has reason to sell and is happy with the sales price, so they will probably predict a lesser price in the near future and the buyer is happy with the buying price because they probably assume a higher price in the near future - both are taking into account all information they know at the time (which might not be the same) - so everything is already priced in....as far as the parties know....many people in the market presumably know all there is currently to know (although individually they may not).

Now, price and value (which is NOT objective) may differ wildly because value lies only in your personal perception and only on a larger scale does price reflect the average value of a larger number of people (you may personally disagree and hence not participate in the transaction).

Silly example, a whole lot of people get their morning coffee from Starbucks and are willing to shell out 5 USD for it, Starbucks would like to get more, but at that price, they have many customers - the price of the item is hence 5 USD. Me, personally, find that ridiculous, I don't interact in this transaction and rather brew my coffee at home for pennies (technically I am part of the market by providing a buy order for say 1 USD, but no one wants to full fill that order, I am providing downward incentive)....that does not change the fact that the price of the Starbucks venti is 5 USD and that seems an average value people give it because there are a lot of those transactions happening every day.

Value perception changes every second of the day and with every information coming in....
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Lee_WSP
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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Fri Mar 27, 2020 12:38 pm

Randolph Mortimer wrote:
Thu Mar 26, 2020 11:57 pm
Elysium wrote:
Thu Mar 26, 2020 11:45 pm
Randolph Mortimer wrote:
Thu Mar 26, 2020 11:42 pm
Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
Smug and wrong. Bravo
Probably because not understanding, give them a chance :P
Nah, someone with that many posts in under a year and still makes a statement like that is someone who obviously isn't doing much listening or trying to understand. I think I was fair :sharebeer
Smug, yes. Wrong, no. It is not wrong because it is not a statement of fact. Just my expression of being very tired of hearing that phrase bandied about at the drop of a hat to try to explain the not very explainable.

columbia
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Re: What does “the market already had it priced in” even mean?

Post by columbia » Fri Mar 27, 2020 12:49 pm

Even if a collective assessment (of risk) is priced in, that doesn’t mean said assessment is correct. As such, it’s not an inherently useful concept.
If you leave your head in the sand for too long, you might get run over by a Jeep.

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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Fri Mar 27, 2020 1:03 pm

columbia wrote:
Fri Mar 27, 2020 12:49 pm
Even if a collective assessment (of risk) is priced in, that doesn’t mean said assessment is correct. As such, it’s not an inherently useful concept.
Not only that, but there are clearly huge "price" differences between the bulls & bears. The price we see is whatever the last two parties agreed to sell & buy at.

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firebirdparts
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Re: What does “the market already had it priced in” even mean?

Post by firebirdparts » Fri Mar 27, 2020 1:26 pm

columbia wrote:
Fri Mar 27, 2020 12:49 pm
Even if a collective assessment (of risk) is priced in, that doesn’t mean said assessment is correct. As such, it’s not an inherently useful concept.
That's true, but I don't think this is even the actual problem. The future will come, and at some point reality sets in. Future reality is not "priced in". No, it's not. The difference between "the predicted odds" of the future outcomes, and the arrival of the future is not a mistake. It's a fundamental condition of making predictions in the first place.

When somebody says future reality is 'priced in' that's not true. What's true is that everybody is just as concerned about future reality as you are.
A fool and your money are soon partners

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Re: What does “the market already had it priced in” even mean?

Post by mega317 » Fri Mar 27, 2020 1:27 pm

Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Fri Mar 27, 2020 1:33 pm

mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.

Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.

deikel
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Re: What does “the market already had it priced in” even mean?

Post by deikel » Fri Mar 27, 2020 1:38 pm

Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
Randolph Mortimer wrote:
Thu Mar 26, 2020 11:57 pm
Elysium wrote:
Thu Mar 26, 2020 11:45 pm
Randolph Mortimer wrote:
Thu Mar 26, 2020 11:42 pm
Lee_WSP wrote:
Thu Mar 26, 2020 11:20 pm
I've come to accept that it is just one of those boglehead-isms brought out often to make staying the course a little easier.
Smug and wrong. Bravo
Probably because not understanding, give them a chance :P
Nah, someone with that many posts in under a year and still makes a statement like that is someone who obviously isn't doing much listening or trying to understand. I think I was fair :sharebeer
Smug, yes. Wrong, no. It is not wrong because it is not a statement of fact. Just my expression of being very tired of hearing that phrase bandied about at the drop of a hat to try to explain the not very explainable.
Its completely explainable - that's what economics does for you

At any given time there are buyers and sellers that create the price that has everything priced in at that moment. AND there many more buyers and sellers that are bystanders with a different value perception and a different idea of a 'fair price', those will not buy (because they offer too low a price) and not sell (because they want a too high price). And this will change with every new information that becomes available and hence the market as a total always creates a fair price.

If the price does not react to something new - then the information does not seem relevant, was already considered/anticipated or 'priced in' or the new information does change the price and then it was clearly not already priced in (maybe due to ignorance, surprise, panic, what have you).
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

deikel
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Re: What does “the market already had it priced in” even mean?

Post by deikel » Fri Mar 27, 2020 1:42 pm

Lee_WSP wrote:
Fri Mar 27, 2020 1:33 pm
mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.

Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.
You are wrong on multiple points - all your examples are wrong. Whenever there is a drastic change in price the information causing it was clearly NOT priced in before and is currently in the process of being priced in

Over the last 7 days many new things occurred. No one knew the exact content of the stimulus bill - probably most still don't, some industries benefit more then others - until it becomes law - still isn't, but at least the content is now known and its highly likely to pass the house.

Yes, to the undecided. Just means many participants on the sidelines that would sell or buy at a different price point then it actually currently is - that causes volatility.
Everything you read in this post is my personal opinion. If you disagree with this disclaimer, please un-read the text immediately and destroy any copy or remembrance of it.

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Carmen1409
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Re: What does “the market already had it priced in” even mean?

Post by Carmen1409 » Fri Mar 27, 2020 1:52 pm

ValuationsMatter wrote:
Fri Mar 27, 2020 10:32 am
I don't understand why some people get upset about phrases or expressions. I was scolded for using this term a day or two ago. I think it's an excellent phrase that captures the essence of how markets are priced based on expectation.
Phrases and expressions are how we create mental schemas. Humans are cognitively lazy so we like to create easy to remember chunks of information that are easily accessible in our brains when we need to reference them. This is also how we store stereotypes and biases. If someone is upset by a phrase, it’s because it doesn’t fit their mental schema. Nothing wrong with that. There are only a few ways to change schemas- personal experience or education with info that changes their mental model and understanding. This is why I asked what the phrase really means because the way I understand it is very different than how others define it (especially evidenced by the replies to this thread!).

Topic Author
Carmen1409
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Re: What does “the market already had it priced in” even mean?

Post by Carmen1409 » Fri Mar 27, 2020 1:53 pm

Thank you all for the answers and interesting discussion!

Lee_WSP
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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Fri Mar 27, 2020 1:53 pm

deikel wrote:
Fri Mar 27, 2020 1:42 pm
Lee_WSP wrote:
Fri Mar 27, 2020 1:33 pm
mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.

Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.
You are wrong on multiple points - all your examples are wrong. Whenever there is a drastic change in price the information causing it was clearly NOT priced in before and is currently in the process of being priced in
You just agreed with me...

It’s not priced in if there is no broad agreement on the impact of already known information.

michaeljc70
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Re: What does “the market already had it priced in” even mean?

Post by michaeljc70 » Fri Mar 27, 2020 1:58 pm

deikel wrote:
Fri Mar 27, 2020 1:42 pm
Lee_WSP wrote:
Fri Mar 27, 2020 1:33 pm
mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.

Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.
You are wrong on multiple points - all your examples are wrong. Whenever there is a drastic change in price the information causing it was clearly NOT priced in before and is currently in the process of being priced in

Over the last 7 days many new things occurred. No one knew the exact content of the stimulus bill - probably most still don't, some industries benefit more then others - until it becomes law - still isn't, but at least the content is now known and its highly likely to pass the house.

Yes, to the undecided. Just means many participants on the sidelines that would sell or buy at a different price point then it actually currently is - that causes volatility.
Pretty much what I was going to say. New numbers on Covid 19 cases and deaths are announced constantly. The unemployment claims number was released. Legislation passed some hurdles. Many individual companies have made statements.

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HomerJ
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Re: What does “the market already had it priced in” even mean?

Post by HomerJ » Fri Mar 27, 2020 2:01 pm

Lee_WSP...

It doesn't explain day-to-day changes.

It DOES explain why most people can't make easy money based on what they know is going to happen in the future.

New Poster: "The unemployment report is coming out tomorrow, and it's going to bad... I bet the market goes down!"

Bogleheads: "No, the market already has that priced in... because everyone already knows it's going to be bad... "

Now, no one is sure how bad...

If it turns out less bad than the average prediction of all the people in the market, the market may go UP on the news.
If it turns out more bad than the average prediction of all the people in the market, the market may go DOWN on the news.

That's it...

It's a pretty simple concept.
The J stands for Jay

ValuationsMatter
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Re: What does “the market already had it priced in” even mean?

Post by ValuationsMatter » Fri Mar 27, 2020 2:04 pm

Carmen1409 wrote:
Fri Mar 27, 2020 1:52 pm
ValuationsMatter wrote:
Fri Mar 27, 2020 10:32 am
I don't understand why some people get upset about phrases or expressions. I was scolded for using this term a day or two ago. I think it's an excellent phrase that captures the essence of how markets are priced based on expectation.
Phrases and expressions are how we create mental schemas. Humans are cognitively lazy so we like to create easy to remember chunks of information that are easily accessible in our brains when we need to reference them. This is also how we store stereotypes and biases. If someone is upset by a phrase, it’s because it doesn’t fit their mental schema. Nothing wrong with that. There are only a few ways to change schemas- personal experience or education with info that changes their mental model and understanding. This is why I asked what the phrase really means because the way I understand it is very different than how others define it (especially evidenced by the replies to this thread!).
Thanks for the note. I gotcha. I'm glad you started the thread, as I think it reset some perceptions.
Lee_WSP wrote:
Fri Mar 27, 2020 1:53 pm
deikel wrote:
Fri Mar 27, 2020 1:42 pm
Lee_WSP wrote:
Fri Mar 27, 2020 1:33 pm
mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.

Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.
You are wrong on multiple points - all your examples are wrong. Whenever there is a drastic change in price the information causing it was clearly NOT priced in before and is currently in the process of being priced in
You just agreed with me...

It’s not priced in if there is no broad agreement on the impact of already known information.
I think things are inherently priced in probabilistic terms. Whether this happens based on individuals evaluating the levels of probability themselves, or in groups whose individuals vary in their expectations but in the group reaching an average, when the even occurs, it can still lead to an adjustment when something 80% expected actually happens. This is just a nuance, not in anyway a critique.

Sometimes guys make money because they are more (or 100%) confident than the market. When they're right, as they are likely to be, they win a little and feel like a genius. When they are wrong, even if they're good thinkers and tend to be right, the market has a stronger reaction. To consistently beat the market in this manner, you have to have a better sense of something's probability than the market does. That's really hard to do in general, but it can be done within your specific area of expertise or when investors, in general, are ignorant to something you're keen on. This is dangerous thinking, though, as it's often very hard to evaluate your own decision-making processes against random luck.
Last edited by ValuationsMatter on Fri Mar 27, 2020 2:07 pm, edited 1 time in total.

JackoC
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Re: What does “the market already had it priced in” even mean?

Post by JackoC » Fri Mar 27, 2020 2:06 pm

Lee_WSP wrote:
Fri Mar 27, 2020 1:33 pm
mega317 wrote:
Fri Mar 27, 2020 1:27 pm
Lee_WSP wrote:
Fri Mar 27, 2020 12:38 pm
to try to explain the not very explainable.
Can you expand on what you mean here? I think it is very explainable with the concept, if not the words, "priced in".
Sure.
Q: "Why did the S&P drop to 2200!?"
A: "It's priced in."

Q: "Why did the Dow just jump 20% in 3 days!?"
A: "It's priced in."

Q: "Why didn't the S&P just stay at 2600 instead of drop to 2200 and then go back up to 2600?"
A: "It's priced in."

Obviously it's not priced in. Nothing new occurred over the last week. Everyone knew the stimulus bill was being worked on. Right now the market is extremely undecided which leaves a lot of wiggle room in between the two extremes.

EMH clearly breaks down badly during periods of high volatility. Over the long term, it seems to hold, but the tautology criticism still seems the most apt.
I would also say that's largely wrong all around and don't know who is being quoted in the strange example quotes.

However especially on the last point, whether 'EMH' is 'true' only matters if you can exploit inefficiencies. What difference does it make if the market is now acting inefficiently unless you know in which direction the overall market is mispriced? But actually a gyrating market, high realized and implied volatility, has nothing directly to do with efficiency. No thesis of efficiency says the market will always make gradual price adjustments, or provide an annotated list of the new information which causes each price change day to day. I still think most 'EMH breaks down' posts are based on a lack of understanding of what efficiency actually means.

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Re: What does “the market already had it priced in” even mean?

Post by mega317 » Fri Mar 27, 2020 2:13 pm

HomerJ wrote:
Fri Mar 27, 2020 2:01 pm
It doesn't explain day-to-day changes.

It DOES explain why most people can't make easy money based on what they know is going to happen in the future.
Here's the best post of the thread. It's about the future, and specifically that you can't do anything clever, because whatever information you are acting on has already been acted on by many people who are faster and moving markets with much more money than you.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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Re: What does “the market already had it priced in” even mean?

Post by Lee_WSP » Fri Mar 27, 2020 2:19 pm

HomerJ wrote:
Fri Mar 27, 2020 2:01 pm
Lee_WSP...

It doesn't explain day-to-day changes.

It DOES explain why most people can't make easy money based on what they know is going to happen in the future.
I never said otherwise.

Just because the underlying theory doesn't hold up, doesn't mean the takeaway is wrong.

novice111
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Re: What does “the market already had it priced in” even mean?

Post by novice111 » Fri Mar 27, 2020 2:22 pm

who are the market makers?
how many of them are there?
how can i find out who they are?

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papito23
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Re: What does “the market already had it priced in” even mean?

Post by papito23 » Fri Mar 27, 2020 2:26 pm

Today is a good example.

The U.S. House just passed on voice vote a massive economic stimulus that the President has signaled he would sign. These were the final steps necessary. My macroeconomic knowledge is elementary, but I have to think that markets like to be juiced with inflows of cash. That should be a net positive.

But VTI (US total stock market) is still down 1.4% today (as of right now). It appears there was broad agreement that this was almost certainly going to happen, and (perhaps) this agreement was solidified earlier in the week, when the market surged.

That is, one the Senate broke the dam, no one expected the House or President to stop the process.
A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise. -Aldo Leopold's Golden Rule of Ecology

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Re: What does “the market already had it priced in” even mean?

Post by JackoC » Fri Mar 27, 2020 2:30 pm

Lee_WSP wrote:
Fri Mar 27, 2020 2:19 pm
HomerJ wrote:
Fri Mar 27, 2020 2:01 pm
Lee_WSP...

It doesn't explain day-to-day changes.

It DOES explain why most people can't make easy money based on what they know is going to happen in the future.
I never said otherwise.

Just because the underlying theory doesn't hold up, doesn't mean the takeaway is wrong.
But again what's the significance of 'the underlying theory doesn't hold up' if the takeaway is right? Doesn't hold up in what measurable way? Surely not just some (meaningless) seat-of-the-pants sense 'no information has changed enough for the market to move *that* much'. You must have more than that. :happy

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