Paul GrahamVerified account

A thing I think is underappreciated: prices measure changes which have often already happened in the world. The change in price is not itself usually the event itself. (Speaking of prices for assets here more than for products.)

For example, during the financial crisis, the value destruction wasn’t house prices falling, mortgages going under water, derivatives blowing up, or the bailout. These were all epiphenomena. The value destruction was society overallocating productive capacity to housing.

(Certain cities in the US are currently engaged in a contest to see who can destroy the most value by illegalizing deploying productive capacity for housing, an event which also impacts prices, in the other direction.)

Away from housing, one sees this in tech as well. Companies have to “grow into” valuations but the valuations themselves largely structurally lag metrics in the business which suggest that the firm is on a trajectory to possibly plausibly grow into those valuations.