Public Markets For Predicting Google's Market Cap

k2enemy writes "The Iowa Electronic Markets have created two markets where traders may buy and sell contracts based on beliefs of Google's market cap at the end of the first day of public trading. The first market, GOOGLE_LIN, trades contracts with liquidation values linearly dependent on the market cap. The second, GOOGLE_WTA, trades six unique and exhaustive contracts in a winner-takes-all market. The markets are currently suggesting a market cap around $30-35 billion. The IEM is also popular for its political markets, which have been very successful (more accurate than polls) at predicting political elections."

Re:not working

[Anonymous Coward]

Its not working though.

Google hasnt really budged on its position, and they still are not worried about the fatcats' FUD. Im not google, nor am I employed there, but I think they want their popularity, usability, and value speak for themselves.

Re:Ironic...

[mclearn]

The stock market is not gambling. This is a myth perpetuated by those who do not understand the stock market, capitalism, or gambling. The fundamental aspect of gambling is that it is a zero sum game. You win, someone else had to lose. You lose, someone else takes your money.

The stock market on the other hand, has two things going for it: products (or services) are generated as a direct result of investors buying stock, and more importantly, it is not a zero sum game. If you "win" (ie. make money), it does not necessarily mean that someone else "lost" (lost money). Case in point: person X sells 100 shares of a company at P for a profit. Person Y bought the shares from them (simplified) at P+e (e = commission and/or bid/ask spread, etc.). Down the road, person Y sells their shares for Q>(P+e) and in so doing ALSO makes a profit. No one was on the losing side of this situation.

Of course, there are situations in the market that can result in gambling: people who hold equal, but opposite positions on an instrument (short & long). If the stock goes up, the shorts lose money and the longs win money. If the stock goes down, the longs lose money and the shorts win money. This is one example; others abound, but the case above, still holds.

Repeat after me: the stock market is *not* gambling.

$30 BILLION?!

[EmagGeek]

Hello people... this is not 1999. We're talking about a company whose only product is online advertising - subtle online advertising at that. You're talking about an Internet search engine having a larger market cap than a lot of Dow30 components who actually have shipping product. What makes google so valuable? What is google going to do for money (besides take it from investors) the next time the Internet advertising market evaporates? What dependencies has google created that will keep revenue flowing? How has google diversified to guard against volatility in the Internet markets?

It's time to start thinknig RATIONALLY about google. Everyone has become so enamored with google that they are overlooking the somewhat minor point that they have zero fundamentals.

The FUD is coming from your direction

[PrvtBurrito]

Where on earth are getting "help the little investor"? Google isn't helping the little investor anymore than anyone else is. What you pay for those 5 minimum shares is the market price. That is the same damn price you will pay on etrade the next day. (where you can buy 1 share if you like). And the fact that lots of people share your belief only suggests to me that the price will be inflated because they think they will be "getting a deal." If they wanted to help the little guy (and not themselves) they would offer the shares at the price wall street would've normally paid for them to the investor with a maximum number of shares that can be purchased (like 50). But that is not what they are doing, they are helping themselves, but pocketing the profits wall street usually gets on the road from the IPO price to the market price (which is often, but not always, higher).

Speculator vs investor

[SmallFurryCreature]

If you are worried about the price in the first few days after the ipo then you are a speculator (read filth) not an investor.

Someone buying 5 shares is not a speculator. That person would be an investor. Investors are intrested in the long term. Hoping that by lending a company a sum of money now that company can use that money to increase its business thereby increase profits and in the future repay the loan with a nice little interest (dividends). True investment is more like a loan that doesn't have to be paid back unless you make a profit.

Speculation is just hoping that someone else will want to buy your shares for more then you have bought them. It has no intrest in the future of the company.

Re:My how times change...

[stromthurman]

You make a very valid point, the two ideas are in fact one in the same.

I really thought DARPA's PAM project was a novel and perhaps useful tool. However, I think the acceptance of this idea, yet the rejection of PAM comes down to a few key points:

• In this case, we're using a market to predict the behavior of investors in a different market (ultimately attempting to predict how the *parent* market behaves, if you'll permit such bastardized terminology.) This idea does not seem terribly radical to most people, maybe a little odd, but not radically different.
• PAM would have used a market to predict events most people consider unsavoury, this doesn't sit well with some people (gambling on terrorism is evil, etc. etc.)
• DARPA may have proposed PAM too soon. The terrorist attacks were/are still to close at hand, the War in Iraq, the threat of another attack in the near future, etc. Perhaps if they had waited longer before proposing the idea, it wouldn't have met with such bad press. [Pure conjecture]
• Many people do not understand how markets work. They have a general misunderstanding of it, perhaps even a fear of it. No matter how strong the evidence is supporting the idea that such markets can (sometimes/often?) predict future events, those who don't understand markets will probably tend to be against the idea. If the idea had been shared with fewer people, and then slowly explained to others, perhaps it would have been successful. [Again, pure conjecture]

Ultimately, I would have liked to see the DARPA project take off, and maybe one day down the road, we will see it rehashed. I feel it certainly provides a better warning system than an arbitrary color coding system that never seems to dip far below "Panic Struck Plaid" these days.

Re:Ironic... and misleading

[zogger]

Simple math, it doesn't take a professional. You seemed to have forgottej to mention that your "winner" person Y had to have someone brand new enter new REAL cash into the market in order for Y to "cash out". That real cash did not come from the market as it stood a second before the cashout, it had to come from outside the market and be introduced into it for the cashout to take place (very broadly speaking but it's true). You forgot that in your details. It's pyramidal, real cash has to be constantly pumped in to it above and beyond the tangible accumulated wealth produced by the goods represented by the actual corporations Service money is a dilution of wealth in the aggregate, hence the name "service". Wealth is a function of ownership of the land, what can be grown or extracted in some manner or form from the land, or what can be manufactured from any combination of the last two. Everything else is a dilution and constitutes wealth production re-arrangement, not wealth production.. If the market wasn't pyramidal, theoretically you could freeze the market one day, at whatever bid price was current,and everyone could do this "cashout" thing, and that's not possible, is it? In fact it might be *at best* a few pennies on the buck in reality, isn't it, right now?

If what you said was true, the crash of 29-34 would have resulted in "all winners", there wouldn't have been a crash at all, we would have had a perpetual boom cycle. We didn't,did we?

Here's the proof. When I was a kid, you could literally go into the five and dime (a lot of people have never even seen such a store, I think they are rare now) and buy a nice bundle of real old great depression era stocks as a novelty for one dime, less than a penny apiece. Very pretty, all curleycue scrolled edges, very impressive looking. They probably represented quite a lot of lost money for a lot of investors. They actually did gamble and lose, millions of them, there were only a few big winners.

No, I won't repeat what you said,because it's not true, I'll say it's an elaborate ponzi scheme that only exists by inducing new suckers into it every friday afternoon. It's not much different from a huge MLM where you have to get people "under you" to actually support you so you don't have to actually produce any true wealth, with the difference being there are much less real products involved than most MLMs which are scussy enough as they are. Theoretical paper contracts as in the article are not much in the way of a real tangible product, they do nothing to help the over all economy, all they do is re-arrange what wealth exists, they produce *nothing*, and the only what it is possible is by shilling newsuckers into it all the time.

Originally how it was set up it was much closer to being a real "investment", with more at least semi honest quantifiable risk data to use for your assessment if you should invest or not. It is not that way now, or are you forgetting the recent dot bomb phenomenon?

Re:Speculator vs investor

[clone22]

The number of shares one buys has nothing to do with whether one is a speculator or investor. There are people who open forex acounts with $50, believe it or not. But you're right that investors are interested in the long term and speculators are generally interested in short term profits.

However, I'll disagree on your characterization of stock ownership as a loan to the company. You are, in fact, buying a part of the company (a share) when you purchase the stock. The company may or may not choose to distribute future profits as dividends. It may instead reinvest those profits in development of new products and infrastructure in order to increase the value of the company, thus increasing the value of the stock.

Lastly, re your characterization of speculators as filth, speculators are essential to the success of commodity markets. Consider a farmer who must sell his crops to earn sufficient money to feed his family. He may purchase options that give him the right to sell his crop at a price that will enable him to earn a profit, even if the market price of the crop drops due to overproduction (good weather, other farmers growing same crop). Someone must take the other side of that option transaction, and that person is a speculator.

Re:Speculator vs investor

[Kevin Stevens]

If you are worried about the price in the first few days after the ipo then you are a speculator (read filth) not an investor.

I disagree. If you are not worried about the share price a few days after, you are foolish. If you know there is an 80% chance that the stock price is going to be significantly lower three days after you plan to buy it, you buy it three days later at the lower price.

Also, your definitions of investing and shares is far off the mark. A share is a piece of the company. You own that company. There is no loaning involved, you don't sell it back to the company, you sell it to another investor. You invest in a company, hoping that the company increases in value, thus raising the share price, or alternatively remains profitable and stable, thus releasing dividends. Share price appreciation is much more common now as most managers choose to reinvest profits in the business, which makes the company grow, and benefits the managers resumes as they get to lord over a larger empire. Also, most managers primarily have options on stock shares and do not own actual shares, so they again just look to get the quick buck from exercising the option and selling it. It used to be more common that something like a tire company would be content with doing well in the tire business, making nice profits and handing out dividends, mostly due to the fact that there were more family businesses and the managers were family members that held large numbers of shares (for a current example MS w/ Gates and Allen share many characteristics). Now the trend is that the company would instead start expanding into making other rubber widgets or if they are feeling really adventurous just buy or venture into some completely unrelated business. Its not a clear argument as to which method is better, as the shareholders should win with each strategy, though companies with dividends have historically produced higher total returns.

Re:Ironic...

[goldmeer]

There is a term that perfectly describes the stock market that for some reason has fallen from common use.

The current word, folks like to use when describing the purchase of stock is "invest [reference.com]" as in "I am investing in the stock market"

The term that should be used is "speculate [reference.com]" as in "I am speculating in the stock market"

You see, if you "invest" in something, you expect to see a profit. If you "speculate" you acknowledge that there is risk involved, but you hope for a profit. I concede that it is a very subtle difference.

I blame the drop from common use on the stockbrokers. (or are they called "investment agents" now?) They want you to feel all happy, warm and fuzzy while they make their commissions on your speculations.

Words are powerful tools. As with all tools, you should try to use the right one for the task at hand.