Efficient Markets Indeed

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DonIce
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Efficient Markets Indeed

Post by DonIce »

https://www.marketwatch.com/story/zoom- ... o_homepage

Short version: People bid up the stock of a defunct company called zoom technologies by 56000% because it has a similar name as another company that just went IPO.

If only I could find a place that would let me short it!

Don't remember this kind of IPO hysteria since the dot com bubble.
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Phineas J. Whoopee
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

Are you willing to tell us your understanding of the term efficient markets?
PJW
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DonIce
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Re: Efficient Markets Indeed

Post by DonIce »

Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
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Re: Efficient Markets Indeed

Post by nedsaid »

DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
This example you gave is Exhibit A for why investors should be attentive to valuations. It also shows there are pockets of craziness in the markets. Markets as a whole can go crazy in rare circumstances. I have said that I believe markets are mostly efficient, efficient enough that most active managers cannot beat the market averages.
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Re: Efficient Markets Indeed

Post by -ryan- »

Actually I think this will be a great example of how efficient markets tend to work, because the price is already in a precipitous fall back to the company's intrinsic value. Even after a large clerical error distorted the price the market is going to push it back to where it should be.

I would guess that this is mostly the result of an error on the part of just one or two large institutional investors. That's just a guess, but seems more realistic than a large number of small investors making the same mistake. I think we are also overestimating how easily a stock with such a low price and trading volume can be distorted. 54,000% is a big number, but that meant that the stock rose to $6. A significant institutional trade would have done just that. Perhaps others would have jumped on, as day traders often have screeners to watch for big percentage price moves and attempt to exploit them, but again I don't think it is a case of thousands of small investors blindly saying 'Zoom! Buy Zoom!'

I believe the markets are mostly efficient. Clearly they are not completely efficient and can stay inefficient for long periods of time, but taking the wide view companies tend to be fairly valued in the long term.
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Re: Efficient Markets Indeed

Post by Solair of Astora »

Kind of sounds like when Pokemon Go for cell phones was released and people were all wandering around the world collecting pokemon. The price for Nintendo went through the roof... the problem was is Pokemon isn't a Nintendo property. They are their own company, and granted Nintendo owns a portion of that company, but still. I believe that Nintendo had to issue a press release to the effect of "we don't own Pokemon" when this was all happening to keep people from buying their stock with false expectations.
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Re: Efficient Markets Indeed

Post by bberris »

-ryan- wrote: Sat Apr 20, 2019 4:38 am .... Even after a large clerical error distorted the price the market is going to push it back to where it should be.

...
More likely a pump and dump. Thinly traded stocks are easy to manipulate. I doubt any sort of legit institution would make this rookie mistake.
Don't even think about shorting it, even if you could. All the operators need to to is call in the shorts and pump it even more. Something something about swimming with sharks. You can read a similar story with an aptly named penny stock called "Cinq".
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Re: Efficient Markets Indeed

Post by fortyofforty »

Reminds me of a story from many years ago in which some students were learning about the stock market. They invested (maybe just virtually) in the stock of a company they all loved, Gap, Inc. Problem was, they invested in GAP instead of GPS, believing that was the ticker symbol. They learned some lessons, for sure.
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Re: Efficient Markets Indeed

Post by -ryan- »

bberris wrote: Sat Apr 20, 2019 6:07 am
-ryan- wrote: Sat Apr 20, 2019 4:38 am .... Even after a large clerical error distorted the price the market is going to push it back to where it should be.

...
More likely a pump and dump. Thinly traded stocks are easy to manipulate. I doubt any sort of legit institution would make this rookie mistake.
Don't even think about shorting it, even if you could. All the operators need to to is call in the shorts and pump it even more. Something something about swimming with sharks. You can read a similar story with an aptly named penny stock called "Cinq".
Having worked for an investment management company in the past, this would be an extremely easy mistake to make. The institutional trading platforms I used were very simple compared to what retail investors use. They are so heavily automated and require just a few inputs and two or three mouse clicks to trade millions or potentially billions of dollars. The liability was always that we had to check the trades to make sure we hadn't made an error, and we caught similar errors to this one on several occasions. It's not like alarm bells go off on your computer when you put the wrong ticker in, because the computer doesn't know the difference. If you aren't paying close attention to the details of the trade it is easy to click straight through, which is why we always had redundancy procedures in place. In a large company, the 'rookie' usually is the one placing these trades on command of their superiors, and perhaps hundreds of similar trades in a single day, therefore breeding complacency.

But that's all speculation based on my knowledge of the industry, trading platforms, and the apparent circumstances surrounding the stock. You could be right and it was a cleverly timed pump and dump scam (though it has become extremely high profile), or perhaps it was a case of mass mistaken identity, with hundreds or thousands of smaller investors putting in the wrong ticker. Have to wait and see!
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

-ryan- wrote: Sat Apr 20, 2019 4:38 am ...
I believe the markets are mostly efficient. Clearly they are not completely efficient and can stay inefficient for long periods of time, but taking the wide view companies tend to be fairly valued in the long term.
Are you willing to tell us your understanding of the term efficient market?

PJW
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Re: Efficient Markets Indeed

Post by mega317 »

fortyofforty wrote: Sat Apr 20, 2019 6:25 am Reminds me of a story from many years ago in which some students were learning about the stock market. They invested (maybe just virtually) in the stock of a company they all loved, Gap, Inc. Problem was, they invested in GAP instead of GPS, believing that was the ticker symbol. They learned some lessons, for sure.
Sorry, what is GAP?
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Re: Efficient Markets Indeed

Post by aristotelian »

DonIce wrote: Fri Apr 19, 2019 11:45 pm https://www.

Don't remember this kind of IPO hysteria since the dot com bubble.
Lyft went down 30%. A lot if IPOs have been doing poorly. I would guess these numbers are on low volume representing a few people capitalizing on the ignorance of a slightly greater few.
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Re: Efficient Markets Indeed

Post by tmcc »

Major index funds that track the S&P or Dow etc are pretty efficient. The extent of mispricing in an entire equity index like the S&P would have to be enormous to move the index. It can happen but it takes a LOT.

Now, in terms of an equity sector or individual stocks, commodities (grains, energy metals), market efficiency may not be in the equation at all. If you can spot this, you can make big money. Of course, sometimes you'll be wrong for longer than you're solvent. :oops:
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Re: Efficient Markets Indeed

Post by nisiprius »

Investors frequently make stupid mistakes due to ticker-symbol or name confusion. It's not rare. People have bought ZOOM instead of ZM, "Tweeter" instead of "Twitter," "Auris Medical Holding AG" instead of "Auris Health," "Oculus Vision Tech" instead of "Oculus VR," "Raptor Pharmaceutical" instead of "Raptor Technologies," and so on and so on. Fine. (Why, I, ahem, once mistakenly bought Vanguard FTSE All-World Ex-Us instead of Vanguard Total International Stock Index. A negligible error in terms of actual effect, but just as stupid as buying Snap Interactive instead of Snapchat). Apparently trading algorithms have made these mistakes, too! But has anybody seriously proposed a way to profit from these mistakes?

If a market is inefficient, that means that there are good opportunities for some people to make speculative gains by taking money away from other people.

But even so, that immediately prompts the question, "what are my reasons for believing that I, personally, am going to be on the winning side?"

The big thing about investing in a cap-weighted total market index is that it doesn't depend on believing in market efficiency, just in math. I am on both sides of every speculative transaction within the market and they cancel out. I cannot possibly win, but the flip side is that I cannot possibly lose, either (beyond the extent of the expense ratio).

Some popular reasons for believing that you will be on the winning side if you depart from the index include:
  • I am a winner. That is just the kind of person I am.
  • I am smarter than the institutional investors in the market.
  • (Plausible variation) And that's not immodest, it is easy for an ordinary small investor to be smarter than institutional investors because we don't have the same constraints. I can beat professionals because I really understand just how good L'Eggs hosiery is in a way that green-shades numbers people never will. And just look at the Beardstown Ladies!
  • I can't beat the market myself, but it is easy for me to identify managers who can. And I am confident that they will generously share most of their alpha with me and not take it all themselves in "expenses."
  • Someone I trust says someone they trust says someone they trust published a paper in the Journal of Big Equations that has a formula for being consistently on the winning side.
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Re: Efficient Markets Indeed

Post by fortyofforty »

mega317 wrote: Sat Apr 20, 2019 8:56 am
fortyofforty wrote: Sat Apr 20, 2019 6:25 am Reminds me of a story from many years ago in which some students were learning about the stock market. They invested (maybe just virtually) in the stock of a company they all loved, Gap, Inc. Problem was, they invested in GAP instead of GPS, believing that was the ticker symbol. They learned some lessons, for sure.
Sorry, what is GAP?
Great Atlantic & Pacific Tea Company, if I recall.
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Re: Efficient Markets Indeed

Post by telemark »

If that's the Zoom I'm thinking of, they made some good modems back in the day. An example of the ideosyncratic risk of concentrating in single stocks.
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Re: Efficient Markets Indeed

Post by -ryan- »

Phineas J. Whoopee wrote: Sat Apr 20, 2019 8:10 am
-ryan- wrote: Sat Apr 20, 2019 4:38 am ...
I believe the markets are mostly efficient. Clearly they are not completely efficient and can stay inefficient for long periods of time, but taking the wide view companies tend to be fairly valued in the long term.
Are you willing to tell us your understanding of the term efficient market?

PJW
You have the internet and can do your own research. If you need a little help, look up 'weak form market efficiency' and let me know what you learn.
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Re: Efficient Markets Indeed

Post by MotoTrojan »

aristotelian wrote: Sat Apr 20, 2019 9:01 am
DonIce wrote: Fri Apr 19, 2019 11:45 pm https://www.

Don't remember this kind of IPO hysteria since the dot com bubble.
Lyft went down 30%. A lot if IPOs have been doing poorly. I would guess these numbers are on low volume representing a few people capitalizing on the ignorance of a slightly greater few.
The actual Zoom IPO did a lot better than Lyft.
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Re: Efficient Markets Indeed

Post by JoeRetire »

DonIce wrote: Fri Apr 19, 2019 11:45 pmPeople bid up the stock of a defunct company called zoom technologies by 56000% because it has a similar name as another company that just went IPO.
But they did it efficiently.
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Re: Efficient Markets Indeed

Post by willthrill81 »

nedsaid wrote: Sat Apr 20, 2019 12:45 am
DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
This example you gave is Exhibit A for why investors should be attentive to valuations. It also shows there are pockets of craziness in the markets. Markets as a whole can go crazy in rare circumstances. I have said that I believe markets are mostly efficient, efficient enough that most active managers cannot beat the market averages.
I agree. The belief that the market as a whole completely incorporates all data for every trade-able security every picosecond that the markets are open seems very flawed. But that doesn't mean that it's possible for active managers to consistently beat the market after taking costs into account. And Bogle's animal spirits can take hold of the market as a whole at times too. The adaptive market hypothesis makes more sense to me than even the semi-strong EMH.
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Re: Efficient Markets Indeed

Post by willthrill81 »

nisiprius wrote: Sat Apr 20, 2019 9:51 amIf a market is inefficient, that means that there are good opportunities for some people to make speculative gains by taking money away from other people.
I'm not so sure that that conclusion is valid. For instance, if the market's pricing was 'random', it wouldn't be efficient, but you couldn't profit through speculation either.

In reality, it's just hard to predict when people are going to make stupid mistakes.
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Re: Efficient Markets Indeed

Post by JBTX »

There was also the company that changed their name to put "block chain" in their name even though they had nothing to do with block chain.

Efficient doesn't necessarily mean that the market processes information correctly (from a backwards looking view or from a fundamental point of view) it just does so very quickly. It is hard to take publicly available information and profit from it.

I would argue that this is an example of market inefficiency. The information is out there. It isn't hard to find. And it wasn't processed terribly quickly.
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Re: Efficient Markets Indeed

Post by nisiprius »

JBTX wrote: Sat Apr 20, 2019 9:16 pm There was also the company that changed their name to put "block chain" in their name even though they had nothing to do with block chain.
You probably mean the Long Island Iced Tea Corp., that changed its name to Long Blockchain Corp. They claimed they were doing something or other with cryptocurrency. They announced they were buying 1,000 "AntMiner S9 crypto mining rigs." Then a month later, they announced they were cancelling the purchase, with no explanation given.
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Re: Efficient Markets Indeed

Post by B4Xt3r »

I think a more nuanced view of the EMH is that it the market is efficient enough that it makes rapid trading impractical.

OP, if you wish to make it more efficient by active trading, I wish you all the luck. I honestly hope you succeed too, you'll help TSM become marginally more efficient and help all the bogleheads out.
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Re: Efficient Markets Indeed

Post by Call_Me_Op »

DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
That has nothing to do with market efficiency (or inefficiency).
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Re: Efficient Markets Indeed

Post by Beliavsky »

DonIce wrote: Fri Apr 19, 2019 11:45 pmIf only I could find a place that would let me short it!
Markets are not efficient in the sense that stocks always trade at a reasonable estimate of fair value. They are close to efficient in the sense that exploiting the errors of others to make a lot of money is difficult, with your inability to find shares to short being one example.
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Re: Efficient Markets Indeed

Post by fortyofforty »

Beliavsky wrote: Sun Apr 21, 2019 7:19 am
DonIce wrote: Fri Apr 19, 2019 11:45 pmIf only I could find a place that would let me short it!
Markets are not efficient in the sense that stocks always trade at a reasonable estimate of fair value. They are close to efficient in the sense that exploiting the errors of others to make a lot of money is difficult, with your inability to find shares to short being one example.
Perhaps illogic is the very thing that makes it well-nigh impossible to "beat" the market. The unpredictable, frenetic, frenzied activity of millions of investors makes the daily movements of individual stocks random, for all practical purposes.
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Re: Efficient Markets Indeed

Post by nedsaid »

willthrill81 wrote: Sat Apr 20, 2019 5:06 pm
nedsaid wrote: Sat Apr 20, 2019 12:45 am
DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
This example you gave is Exhibit A for why investors should be attentive to valuations. It also shows there are pockets of craziness in the markets. Markets as a whole can go crazy in rare circumstances. I have said that I believe markets are mostly efficient, efficient enough that most active managers cannot beat the market averages.
I agree. The belief that the market as a whole completely incorporates all data for every trade-able security every picosecond that the markets are open seems very flawed. But that doesn't mean that it's possible for active managers to consistently beat the market after taking costs into account. And Bogle's animal spirits can take hold of the market as a whole at times too. The adaptive market hypothesis makes more sense to me than even the semi-strong EMH.
I have made this point to Efficient Market fanatics for years but gotten little response. In early 2000, the US Stock Market reached nosebleed territory, forward P/E ratios approaching 45 and P/E's based on reported earnings reaching 32. Or internet stocks with no earnings and in a few cases with no sales priced to infinity. Some stocks were priced closer to reality than others. How efficient is that really? Valuations mattered and though earnings doubled over the next dozen year, the market was a bit down to flat during a time spanning from early 2000 until 2012. Valuations matter and matter a lot. Also markets are prone to excessive optimism at times and also excessive pessimism.
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Re: Efficient Markets Indeed

Post by acegolfer »

EMH states current price reflects all available information. However, it doesn't state the information has to be correct information. Price may reflect incorrect information, which is the case in OP example.
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

-ryan- wrote: Sat Apr 20, 2019 2:07 pm
Phineas J. Whoopee wrote: Sat Apr 20, 2019 8:10 am
-ryan- wrote: Sat Apr 20, 2019 4:38 am ...
I believe the markets are mostly efficient. Clearly they are not completely efficient and can stay inefficient for long periods of time, but taking the wide view companies tend to be fairly valued in the long term.
Are you willing to tell us your understanding of the term efficient market?

PJW
You have the internet and can do your own research. If you need a little help, look up 'weak form market efficiency' and let me know what you learn.
Thank you for the advice. Here's my write-up from several years ago.

PJW
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Re: Efficient Markets Indeed

Post by willthrill81 »

acegolfer wrote: Sun Apr 21, 2019 10:36 am EMH states current price reflects all available information. However, it doesn't state the information has to be correct information. Price may reflect incorrect information, which is the case in OP example.
If the information is not incorporated 'correctly', however that is defined, then the practical implications of the EMH become very thin, possibly non-existent.

Here's an example. Let's say that persons A and B are the only participants in a given market, they both have access to identical information, and they can both act on that information as it changes 'instantly'. If person A can better utilize that information than person B (i.e. 'more correctly'), then person A should outperform person B in the long-run.
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

willthrill81 wrote: Sun Apr 21, 2019 5:14 pm
acegolfer wrote: Sun Apr 21, 2019 10:36 am EMH states current price reflects all available information. However, it doesn't state the information has to be correct information. Price may reflect incorrect information, which is the case in OP example.
If the information is not incorporated 'correctly', however that is defined, then the practical implications of the EMH become very thin, possibly non-existent.

Here's an example. Let's say that persons A and B are the only participants in a given market, they both have access to identical information, and they can both act on that information as it changes 'instantly'. If person A can better utilize that information than person B (i.e. 'more correctly'), then person A should outperform person B in the long-run.
Disagreements over pricing are part and parcel of capital markets, even if every participant has the same information. There isn't, and can't be, perfect pricing.

PJW
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Re: Efficient Markets Indeed

Post by willthrill81 »

Phineas J. Whoopee wrote: Sun Apr 21, 2019 6:58 pm
willthrill81 wrote: Sun Apr 21, 2019 5:14 pm
acegolfer wrote: Sun Apr 21, 2019 10:36 am EMH states current price reflects all available information. However, it doesn't state the information has to be correct information. Price may reflect incorrect information, which is the case in OP example.
If the information is not incorporated 'correctly', however that is defined, then the practical implications of the EMH become very thin, possibly non-existent.

Here's an example. Let's say that persons A and B are the only participants in a given market, they both have access to identical information, and they can both act on that information as it changes 'instantly'. If person A can better utilize that information than person B (i.e. 'more correctly'), then person A should outperform person B in the long-run.
Disagreements over pricing are part and parcel of capital markets, even if every participant has the same information. There isn't, and can't be, perfect pricing.

PJW
I agree. That's why I don't believe that the implications of markets being 'efficient' (i.e. quickly incorporating all available information) or not are as strong as many believe.
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Re: Efficient Markets Indeed

Post by brianplycatu »

DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
Be very careful with your flagrant use of "EMH" DonIce. It is the bible here. A long time ago when Bogleheads were Diehards and they were located on Morningstar ( TIPs paid a four percent coupon and Mel overweighted midcaps ) there was a joke about two investors walking down the sidewalk. They both saw a hundred dollar bill. The one who was a disciple of efficient markets believed the bill was an illusion because nobody would treat a Ben Franklin so carelessly. The other investor rejected the theory and picked up the bill.
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Re: Efficient Markets Indeed

Post by dougger5 »

DonIce wrote: Fri Apr 19, 2019 11:45 pm https://www.marketwatch.com/story/zoom- ... o_homepage

Short version: People bid up the stock of a defunct company called zoom technologies by 56000% because it has a similar name as another company that just went IPO.

If only I could find a place that would let me short it!

Don't remember this kind of IPO hysteria since the dot com bubble.
Interesting number, that percentage...I still have a Zoom 56k modem somewhere 8-)
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

brianplycatu wrote: Sun Apr 21, 2019 8:29 pm
DonIce wrote: Sat Apr 20, 2019 12:07 am
Phineas J. Whoopee wrote: Sat Apr 20, 2019 12:04 am Are you willing to tell us your understanding of the term efficient markets?
PJW
Was just being sarcastic with the title. But I'd venture to say that the price of a stock going up hundreds of times because it gets confused with a different company doesn't seem very efficient!
Be very careful with your flagrant use of "EMH" DonIce. It is the bible here. A long time ago when Bogleheads were Diehards and they were located on Morningstar ( TIPs paid a four percent coupon and Mel overweighted midcaps ) there was a joke about two investors walking down the sidewalk. They both saw a hundred dollar bill. The one who was a disciple of efficient markets believed the bill was an illusion because nobody would treat a Ben Franklin so carelessly. The other investor rejected the theory and picked up the bill.
Bogleheads style investing is founded not on the EMH, but the Cost Matters Hypothesis.

The problem is so many prolific posters interpret the Efficient Market Hypothesis as meaning they personally agree with the most recent price at which the most eager buyer and most eager seller transacted.

It does not say, and does not mean, that.

PJW
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Re: Efficient Markets Indeed

Post by fortyofforty »

It it's necessary, this from Investopedia:
The Efficient Market Hypothesis, or EMH, is an investment theory whereby share prices reflect all information and consistent alpha generation is impossible. Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns, or alpha, consistently and only inside information can result in outsized risk-adjusted returns.
If you're going to disagree, you'll need pretty good reasons to do so.
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Re: Efficient Markets Indeed

Post by z3r0c00l »

Speculation is a distraction from the real business of investing.
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Re: Efficient Markets Indeed

Post by willthrill81 »

fortyofforty wrote: Mon Apr 22, 2019 6:20 am It it's necessary, this from Investopedia:
The Efficient Market Hypothesis, or EMH, is an investment theory whereby share prices reflect all information and consistent alpha generation is impossible. Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns, or alpha, consistently and only inside information can result in outsized risk-adjusted returns.
If you're going to disagree, you'll need pretty good reasons to do so.
In my mind, there is a disconnect between the first statement (i.e. "share prices reflect all information") and the second statement, underlined above. The second does not necessarily follow from the first unless we modify the first statement to say that share prices 'accurately' reflect all information. Just because someone reacts to something, it does not follow that their subsequent behavior is an appropriate or fitting response. The OP's example clearly demonstrates that share prices do not always accurately reflect all information. But predicting when and how such inaccuracies will occur a priori is very difficult to do, and when we throw costs and the CMH into the mix, it may become exceedingly difficult.
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Re: Efficient Markets Indeed

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willthrill81 wrote: Mon Apr 22, 2019 9:23 am
fortyofforty wrote: Mon Apr 22, 2019 6:20 am It it's necessary, this from Investopedia:
The Efficient Market Hypothesis, or EMH, is an investment theory whereby share prices reflect all information and consistent alpha generation is impossible. Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns, or alpha, consistently and only inside information can result in outsized risk-adjusted returns.
If you're going to disagree, you'll need pretty good reasons to do so.
In my mind, there is a disconnect between the first statement (i.e. "share prices reflect all information") and the second statement, underlined above. The second does not necessarily follow from the first unless we modify the first statement to say that share prices 'accurately' reflect all information. Just because someone reacts to something, it does not follow that their subsequent behavior is an appropriate or fitting response. The OP's example clearly demonstrates that share prices do not always accurately reflect all information. But predicting when and how such inaccuracies will occur a priori is very difficult to do, and when we throw costs and the CMH into the mix, it may become exceedingly difficult.
Are you willing to point us to the external-to-the-market pricing authority you implicitly refer to? If it's your own analysis, that does not violate the EMH. The market is made of diverging opinions.

There is not, and cannot be, perfect pricing. The basis of commerce is the same thing is worth different amounts to different people at the same time.

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Re: Efficient Markets Indeed

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Phineas J. Whoopee wrote: Mon Apr 22, 2019 10:08 am
willthrill81 wrote: Mon Apr 22, 2019 9:23 am
fortyofforty wrote: Mon Apr 22, 2019 6:20 am It it's necessary, this from Investopedia:
The Efficient Market Hypothesis, or EMH, is an investment theory whereby share prices reflect all information and consistent alpha generation is impossible. Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns, or alpha, consistently and only inside information can result in outsized risk-adjusted returns.
If you're going to disagree, you'll need pretty good reasons to do so.
In my mind, there is a disconnect between the first statement (i.e. "share prices reflect all information") and the second statement, underlined above. The second does not necessarily follow from the first unless we modify the first statement to say that share prices 'accurately' reflect all information. Just because someone reacts to something, it does not follow that their subsequent behavior is an appropriate or fitting response. The OP's example clearly demonstrates that share prices do not always accurately reflect all information. But predicting when and how such inaccuracies will occur a priori is very difficult to do, and when we throw costs and the CMH into the mix, it may become exceedingly difficult.
Are you willing to point us to the external-to-the-market pricing authority you implicitly refer to?
Future prices. Share prices reflecting in some way all publicly available information does not necessarily mean that they are the most accurate estimate of the net present value of all future income from a given security.

Stating that prices are reflective of all information is, in and of itself, vacuous.
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Re: Efficient Markets Indeed

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willthrill81 wrote: Mon Apr 22, 2019 11:42 am
Phineas J. Whoopee wrote: Mon Apr 22, 2019 10:08 am
willthrill81 wrote: Mon Apr 22, 2019 9:23 am
fortyofforty wrote: Mon Apr 22, 2019 6:20 am It it's necessary, this from Investopedia:
The Efficient Market Hypothesis, or EMH, is an investment theory whereby share prices reflect all information and consistent alpha generation is impossible. Theoretically, neither technical nor fundamental analysis can produce risk-adjusted excess returns, or alpha, consistently and only inside information can result in outsized risk-adjusted returns.
If you're going to disagree, you'll need pretty good reasons to do so.
In my mind, there is a disconnect between the first statement (i.e. "share prices reflect all information") and the second statement, underlined above. The second does not necessarily follow from the first unless we modify the first statement to say that share prices 'accurately' reflect all information. Just because someone reacts to something, it does not follow that their subsequent behavior is an appropriate or fitting response. The OP's example clearly demonstrates that share prices do not always accurately reflect all information. But predicting when and how such inaccuracies will occur a priori is very difficult to do, and when we throw costs and the CMH into the mix, it may become exceedingly difficult.
Are you willing to point us to the external-to-the-market pricing authority you implicitly refer to?
Future prices. Share prices reflecting in some way all publicly available information does not necessarily mean that they are the most accurate estimate of the net present value of all future income from a given security.
Your own analysis then, including selection of a valuation method. Fair enough.
willthrill81 wrote: Mon Apr 22, 2019 11:42 amStating that prices are reflective of all information is, in and of itself, vacuous.
Only the parodists and those they fool claim that.

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Re: Efficient Markets Indeed

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Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
willthrill81 wrote: Mon Apr 22, 2019 11:42 amStating that prices are reflective of all information is, in and of itself, vacuous.
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
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Re: Efficient Markets Indeed

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willthrill81 wrote: Tue Apr 23, 2019 1:40 pm
Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
willthrill81 wrote: Mon Apr 22, 2019 11:42 amStating that prices are reflective of all information is, in and of itself, vacuous.
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
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Re: Efficient Markets Indeed

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fortyofforty wrote: Tue Apr 23, 2019 2:58 pm
willthrill81 wrote: Tue Apr 23, 2019 1:40 pm
Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
willthrill81 wrote: Mon Apr 22, 2019 11:42 amStating that prices are reflective of all information is, in and of itself, vacuous.
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
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Re: Efficient Markets Indeed

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willthrill81 wrote: Tue Apr 23, 2019 3:24 pm
fortyofforty wrote: Tue Apr 23, 2019 2:58 pm
willthrill81 wrote: Tue Apr 23, 2019 1:40 pm
Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
willthrill81 wrote: Mon Apr 22, 2019 11:42 amStating that prices are reflective of all information is, in and of itself, vacuous.
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
Plus don't forget... even if the fact is known, the algos can easily misprice a given security. This is especially so in thin markets, commodities and during events (fed minutes, beige book, FDA estimates,etc). *Marketing timing high fives all around*
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Re: Efficient Markets Indeed

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tmcc wrote: Tue Apr 23, 2019 4:52 pm
willthrill81 wrote: Tue Apr 23, 2019 3:24 pm
fortyofforty wrote: Tue Apr 23, 2019 2:58 pm
willthrill81 wrote: Tue Apr 23, 2019 1:40 pm
Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
Plus don't forget... even if the fact is known, the algos can easily misprice a given security. This is especially so in thin markets, commodities and during events (fed minutes, beige book, FDA estimates,etc). *Marketing timing high fives all around*
Examples such as those in the OP make it clear that a false perception among a tiny portion of the market can result in certain securities being significantly mispriced (i.e. priced in a completely and obviously irrational way that is shortly revealed to be faulty). With that being the case, how can we expect the market as a whole to remain efficient when far larger swaths of the market are exhibiting similar misperceptions (e.g. panicking)?

I think that many have confused the market's 'comparatively high' efficiency and randomness, along with the associated difficulty in consistently exploiting inefficiencies cost effectively, for 'complete and perpetual efficiency'. The adaptive market hypothesis makes far more sense to me.

That being said, I believe that the EMH, like Newtonian physics, is a good 'working' hypothesis that most investors would do well to act as though it's true even though we know that it strictly isn't.
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Re: Efficient Markets Indeed

Post by Phineas J. Whoopee »

tmcc wrote: Tue Apr 23, 2019 4:52 pm
willthrill81 wrote: Tue Apr 23, 2019 3:24 pm
fortyofforty wrote: Tue Apr 23, 2019 2:58 pm
willthrill81 wrote: Tue Apr 23, 2019 1:40 pm
Phineas J. Whoopee wrote: Tue Apr 23, 2019 1:33 pm
Only the parodists and those they fool claim that.
Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
Plus don't forget... even if the fact is known, the algos can easily misprice a given security. This is especially so in thin markets, commodities and during events (fed minutes, beige book, FDA estimates,etc). *Marketing timing high fives all around*
If something is mispriced, then there must be another price that's the correct price.

Are you willing to point us to the external-to-the-market pricing authority that determines the correct price?

PJW
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Re: Efficient Markets Indeed

Post by tmcc »

Phineas J. Whoopee wrote: Tue Apr 23, 2019 6:22 pm
tmcc wrote: Tue Apr 23, 2019 4:52 pm
willthrill81 wrote: Tue Apr 23, 2019 3:24 pm
fortyofforty wrote: Tue Apr 23, 2019 2:58 pm
willthrill81 wrote: Tue Apr 23, 2019 1:40 pm

Sadly, I believe that many here believe precisely that.
With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
Plus don't forget... even if the fact is known, the algos can easily misprice a given security. This is especially so in thin markets, commodities and during events (fed minutes, beige book, FDA estimates,etc). *Marketing timing high fives all around*
If something is mispriced, then there must be another price that's the correct price.

Are you willing to point us to the external-to-the-market pricing authority that determines the correct price?

PJW
Thinking about it in terms of correctness is way too narrow. The market determines the price through elasticity of supply and demand. That's all I'll give you. Besides, the BH philosophy says determining inefficiency is impossible. That would be market timing, right? We all know you just can't do that
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Re: Efficient Markets Indeed

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tmcc wrote: Wed Apr 24, 2019 8:11 am
Phineas J. Whoopee wrote: Tue Apr 23, 2019 6:22 pm
tmcc wrote: Tue Apr 23, 2019 4:52 pm
willthrill81 wrote: Tue Apr 23, 2019 3:24 pm
fortyofforty wrote: Tue Apr 23, 2019 2:58 pm

With the caveats that nothing is immediate but extremely fast, and that "information" includes both fact and fiction, truth and rumor, speculation and certainty, then it is close enough for me.
In light of situations such as those brought up by the OP, even if that is true, I don't believe that it is meaningful in and of itself.
Plus don't forget... even if the fact is known, the algos can easily misprice a given security. This is especially so in thin markets, commodities and during events (fed minutes, beige book, FDA estimates,etc). *Marketing timing high fives all around*
If something is mispriced, then there must be another price that's the correct price.

Are you willing to point us to the external-to-the-market pricing authority that determines the correct price?

PJW
Thinking about it in terms of correctness is way too narrow. The market determines the price through elasticity of supply and demand. That's all I'll give you. Besides, the BH philosophy says determining inefficiency is impossible. That would be market timing, right? We all know you just can't do that
I'm inclined to agree with you that 'correctness' is probably too narrow a way of looking at it. I have a little expertise in the area of perceptual fairness that might be useful to illustrate this. There are at least two types of fairness: distributive and procedural. Distributive fairness addresses whether a particular outcome is fair, whereas procedural fairness deals with whether the methods used to derive the outcome are fair. I believe that we can substitute 'fair' with 'rational' in the context of efficient pricing. In the OP's example, we see that the method used to derive the much higher price for certain securities was clearly not 'procedurally rational', even if it isn't possible for us to say that a price is 'distributively rational' or not.
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