NASDAQ undervalued?

Hello,

I've been hearing from some financial experts that I seem to trust that the NASDAQ is considerably undervalued. If you are a young investor, is it time to start putting some money to work in the NASDAQ (i.e. QQQQ) with the assumption that tech stocks are poised for a colossal rebound?

Just a question for giggles.

Reply to
thamsenman
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Giggle. What about it makes it undervalued? Is just that it is 1/4 of bubble peak? Or are there some fundamental value measures that are lower than their mean?

As with any market tip, it is just rumor and speculation unless you can independently convince yourself of the validity.

-- Doug

Reply to
Douglas Johnson

The financial expert I listen to thinks that the market is quite over-valued. Make your own judgement:

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Reply to
po.ning

By definition, isn't it exactly fairly valued? There are a nearly equal number of buyers and sellers at the current price. The buyers are willing to pay the price, and the sellers are willing to sell at that level. That seems about as fair as it can get.

-john-

Reply to
John A. Weeks III

Your definition of "fair value" makes sense for a professional market-maker, but an investor obviously has a longer time horizon, for which it is NOT true by definition that the market is always fairly valued. Whether one can use publicly available data to determine if the stock market is fairly valued has been the subject of countless academic papers, yielding conflicting results.

Reply to
beliavsky

No, there must always be *exactly* the same number of shares bought as the number of shares sold. If you place a sell order for an extremely large number of shares, it may be only partially filled, if an insufficient number of corresponding buy orders have not been placed. The exchange's market makers can handle some misalignment by buying or selling shares themself, but they have limits.

Been there, done that, got the T-shirt...

John Cowart

Reply to
bo peep

But when that happens, the price changes. If there are more buyers than sellers, the price goes up. More sellers than buyers, and the price goes down. Since the price has been in the same trading range of $35 to $40 (recently moved up towards $45) for 3 years, there must be just about the same number of buyers and sellers. If a price goes 3 years with no substantial change, that pretty much must be the fair price.

-john-

Reply to
John A. Weeks III

Ah, yes, but the number of buyers and sellers doesn't usually equal the number of shares sold. A buyer can purchase the shares of several sellers, or a seller can sell to more than one buyer.

Elizabeth Richardson

Reply to
Elizabeth Richardson

My suggestion is to ignore the Nasdaq composite, both as an indicator of "how the market's valued" and as a possible vehicle for investing (via QQQQ).

Indices are supposed to be representative of something. The Wilshire

5000 is an excellent indicator of "the US stock market" because it reflects the current market value of most publicly traded companies (close to 7000 are factored into the index value). Similarly the S&P 500 is a very good indicator of how larger US stocks are doing, as it includes most of them in its calculation. Even the Dow, with only 30 stocks, is a pretty good proxy for "large US stocks" and its performance is actually quite correlated to the S&P 500. If you pull up the actual stock lists for these indices you can see why -- they include all of the important companies, in an assortment of industries that produce and sell most stuff.

And by extension, an investment in vehicles that track these indices has some significance, and is rational to do - you're investing in the collective earnings power of US industry, allocated according to the market's value placed on each enterprise (so GE, which sells a heck of a lot of stuff, gets more of your dollars than Bed Bath & Beyond, which does not).

And if you're interested in industry sectors for some reason, the index publishers break down the market by sectors into sub-indices (see the S&P and Dow Jones sector industries all of which have ETFs for them).

OK now for the Nasdaq. It's a really arbitrary group of stocks. Just as an exercise pull up the list of the stocks in QQQQ, or its industry-sector breakdown, and you'll see what I mean. The Nasdaq Composite reflects the collective value of stocks that happen to be listed for trade via NASDAQ rather than NYSE. It contains a lot of smaller stocks, but it doesn't contain all of them (the Russell 2000 index, which ignores whether a stock is NASDAQ or NYSE listed, is a decent proxy for small stocks). It contains a lot of tech stocks, but it's not really a tech-stock index - it excludes a few of the most important ones (IBM and HP for example) and a big portion of it is non-tech (almost half is other stuff). And it excludes some very important sectors of our economy - Finance & Energy for example. So it's not a small-cap index, it's not a tech-stock index, and it omits some of the most important industries entirely.

So what is it? An arbitrary list of mostly-smaller companies, dominated by a few mega-cap tech names. Why put money into an arbitrary list of stocks, or even address whether that arbitrary list is over- or undervalued?

Among many professional investors, the Nasdaq isn't followed -- it just doesn't have much significance. It's volatile so is more headline-worthy but doesn't matter much at the end of the day. Qube-Caveat Emptor!

-Tad

Reply to
Tad Borek

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